•  , 


GIVING  AND  GETTING  CREDIT 


BY  FREDERICK   B.  GODDARD 


art  of  Selling 

12MO,  FLEXIBLE  CLOTH,  50C. 

<3i\>fng  and  (Setting  Credit 

12MO,  CLOTH,  $1.00 


NEW    YORK 

F.   TENNYSON    NEELY 
114  FIFTH  AVENUE 


GIVING  AND  GETTING 
CREDIT 

A  BOOK  FOR  BUSINESS  MEN 


BY 


FREDERICK  B.  GODDARD 


NEW  YORK 

F.  TENNYSON  NEELY 

114  FIFTH  AVENUE 


'  V  /  T  0  6 

W 


COPYRIGHT,  1895, 
By  FREDERICK  B.  GODDARD 


CONTENTS. 


CHAPTER  I. 
CREDIT  AND  MONEY. 

PAGE 

The  meaning  of  Credit. — It  utilizes  the  present 
value  of  a  future  payment. — It  neither  creates 
nor  destroys  capital. — Credit  system  a  vast  se- 
ries of  mutual  dependencies. — Credit  the  "soul 
of  commerce." — Ninety  per  cent  of  business 
done  upon  Credit.  — Coined  money  the  standard 
measure  of  values.— Is  a  medium,  and  also  an 
object  of  exchange. — Money  is  supposed  to 
stand  still  while  prices  of  other  things  move. — 
The  wealthy  deal  chiefly  by  Credits,  they  ex- 
change the  title  to  money  by  checks,  etc.— 
Long  and  short  Credits. — A  link  broken  in  the 
chain. — When  confidence  gives  way  to  distrust. 
— Credit  unused  grows  rusty. — Merchants'  notes 
in  the  market. — The  simple  and  national  rela- 
tions of  buyer  and  seller.  — The  merchant  a  bet- 
ter judge  of  Credits  than  the  banker.— The 
"nimble  sixpence." 7 


CONTENTS. 


CHAPTER  II. 

OP  FAILURES  AND   CHANGES  IN   BUSINESS 
CONDITIONS. 

PAGE 

Some  failures  will  surely  occur. — Proportionate 
uniformity  in  the  number  of  failures  in  a  series 
of  years. — Average  losses  on  credit  sales. — Total 
failures  and  liabilities  during  the  last  thirty- 
eight  years. — Business  prosperous  about  three- 
quarters  of  the  time. — Cardinal  considerations 
in  giving  Credit.— Changing  conditions. — 
Fraudulent  and  unfortunate  failures. — It  is  the 
unexpected  which  makes  bad  debts. — Meaning 
of  insolvency,  failure,  and  bankruptcy 23 


CHAPTER   III. 
SUGGESTIONS  AND  PRECAUTIONS. 

Business  men  should  make  known  their  financial 
position,  the  age  of  mystery  passing  away. — 
Applicant  for  Credit  should  prove  that  he  is 
worthy  of  it. — Policy  of  establishing  a  Credit 
when  it  is  not  needed. — Chances  taken  with  old 
patrons. — Merchants'  ledger  his  barometer. — 
Where  is  the  money  of  a  tardy  debtor? — "Dry 
rot"  in  old  concerns. — "No  friendship  in  busi- 
ness" an  atrocious  maxim. — Most  men  mean  to 
be  honest. — Weakness  of  the  Credit  system. — 
Must  walk  by  facts  and  not  by  faith. — Neither 
display  nor  liberality  should  mislead. — Should 
be  not  merely  persuaded  but  convinced. — Giv- 
ing Credit  implies  risk. — The  weakness  of 
timidity  and  over-caution. — The  cost  of  con- 


CONTENTS.  3 

PAGE 

ducting  business.— Personal  expenditure. —The 
catechism  of  a  business  house. — Bed  tape. — 
"  Not  processes  but  results"  wanted 37 

CHAPTER  IV. 

ESTIMATING  CREDITS. 

Balance  sheet  or  statement,  duly  signed  and  verified, 
the  best  test  of  a  man's  financial  condition. — 
The  construction  of  a  statement  indicates  much. 
—Assets  shrink,  but  liabilities  never.— "Real" 
and  "nominal"  assets. — Houses  in  irretrievable 
difficulties  holding  on. — References  and  their 
value.— Questionable  references.— The  best  type  , 
of  buyers. — Overloading  Credit  customers. — 
Dating.— Cash  discounts.— A  "time  to  watch 
and  a  time  to  pray." 53 

CHAPTER  V. 
POINTS  ON  GIVING  CREDIT. 

Nature  of  the  patronage  upon  which  a  credit  cus- 
tomer must  depend.  —Agricultural,  manufactur- 
ing, mining,and  mixed  pursuit  communities. — 
Over-production. — Better  stimulate  consump- 
tion than  try  to  check  production. — A  crusade 
of  development.— Losing  sight  of  the  trend  of 
affairs.— Business  a  matter  of  principles  and 
methods. — Difference  in  men.— Luck. — The  line 
between  speculation  and  enterprise.— Amateur 
gambling.— Opinions  of  a  New  York  merchant. 
—Giving  Credit  upon  instinct  or  intuition. — 
The  Jewish  race  in  commercial  affairs. —Credit 
in  other  countries 69 


4  CONTENTS. 

CHAPTER  VI. 
COLLECTION. 

PAGE 

Enforcing  prompt  payments.  — Differing  collection 
laws  of  the  States.— Credit  obligations  resting 
upon  honor.— Fraudulent  default.— The  menace 
most  effective  which  lies  in  firmness,  not  irrita- 
tion of  speech.  — The  first  offer  of  a  bankrupt.  — 
Circumstances  should  qualify  final  basis  of 
settlement  in  each  case. — Sending  distant 
claims  for  collection  to  unknown  lawyers. — 
Collection  agencies,  etc 91 

CHAPTER  VII. 
CORPORATIONS. 

Advantages  of  a  corporation  over  a  partnership. — 
A  favorite  method  of  forming  corporations  in 
times  past. — Liabilities  of  stockholders  defined. 
— Unincorporated  companies. — Industrial  cor- 
porations.— Trusts. — The  Sherman  Anti-Trust 
Law  has  but  little  restraining  power. — Many 
corporations  have  been  based  on  schemes  of 
dreamers  and  swindlers. — Special  cautions  in 
extending  Credit  to  corporations 106 

CHAPTER  VIII. 
THE  MERCANTILE  AGENCY  SYSTEM. 

Its  origin  in  1841.— Early  history  and  growth.— 
Leading  mercantile  agencies  of  the  past  and 
present.— Agency  methods.— The  usefulness  of 


CONTENTS. 


an  agency. — The  American  mercantile  agency 
system  unique.— The  agency  of  the  future.  —The 
agency  has  become  a  necessity  of  trade 120 

CHAPTER  IX. 
CREDIT  GUARANTEE  OR  INDEMNITY  SYSTEMS. 

Their  beginning  and  the  principles  on  which  they 
are  based. — New  and  ingenious  features. — Some 
notable  differences  between  Credit  insurance 
and  other  kinds  considered. — May  in  time 
become  a  bulwark  of  trade.  —Merchants  appear 
to  wish  them  success.— They  have  met  with 
unfavorable  conditions  so  far,  in  the  business 
depression.— Must  pass  through  their  experi- 
mental stages 136 

CHAPTER  X. 
A  UNIFORM  BANKRUPT  LAW. 

The  general  need  of  such  a  law. — Difference  between 
bankrupt  and  insolvent  laws. — Earlier  bankrupt 
laws. — Bankrupt  laws  in  other  countries. — A 
good  law  would  operate  to  punish  fraud,  and 
protect  creditors. — The  Torrey  Bill. —Popular 
demand  for  its  passage. — Advocated  by  the  Na- 
tional Board  of  Trade,  and  why 144 

CHAPTER  XI. 
PANICS. 

Panics  since  1814,  equal  in  number  in  the  civilized 
countries,  and  practically  simultaneous. — Spec- 
ulations on  their  underlying  causes. — History 
of  each  panic  in  the  United  States  since  1814. .  153 


6  CONTENTS. 

CHAPTER  XII. 
THE  PANIC  OF  1893. 

PAGE 

Its  proximate  cause  distrust  of  the  stability  of  the 
currency. — Other  events  which  helped  to 
produce  and  intensify  it. — The  demonetization 
of  silver  a  monetary  evolution. — Its  effects  upon 
trade.— The  Bland  Bill.— The  Sherman  Bill.— 
These  measures  held  responsible  by  many  for 
the  crisis. — The  Barings'  failure. — The  condi- 
tion of  affairs  in  1891-2.— The  year  1893  opened 
with  gray  skies. — The  Australian  bank  failures. 
— Gold  exports. — The  President's  action. — 
Failures  in  June,  and  scarcity  of  currency. — The 
Government  of  India  suspends  free  silver  coin- 
age.— Congress  repeals  the  silver-purchase 
clause  of  the  Sherman  Act,  Nov.  1. — It  did  not 
restore  confidence. — Review  of  affairs  in  1894. 
— The  export  of  gold  checked  early  in  1895. — 
The  turning-point  in  the  panic. — The  advocates 
of  free  silver  coinage. — The  nation  demands  an 
honest  dollar. — Bimetallism  a  "back  number." 
— The  prevention  of  panics. — Panics  beacon 
lights  of  warning  and  instruction.— Their 
lessons  to  business  men 168 

APPENDIX. 

The  assignment,  insolvent,  exemption,  and  other 
laws  of  all  the  States  and  Territories. .  .  195 


GIVING  AND  GETTING  CREDIT. 


CHAPTER  I. 

CREDIT  AND   MONEY. 

COMMERCIAL  credit  is  the  name  of  that  trust 
which  is  reposed  in  men  because  of  their  char- 
acter and  resources.  In  other  words,  it  is  an 
estimate  of  ability  and  disposition  to  fulfil  busi- 
ness engagements  which  confers  purchasing 
power ;  power  to  command  the  industry  or  the 
capital  of  others. 

Credit  is  the  opposite  of  money,  for  it  pays 
nothing.  Debt  is  a  thing  to  be  paid,  and  money 
is  the  thing  that  pays.  But  the  value  which  is 
attached  to  a  merchant's  word,  the  skill  and 
experience  he  has  acquired,  and  the  relations  he 
has  established,  must  surely  be  considered,  in 
some  sense,  as  capital. 

The  man  who  buys  with  money  uses  the  real- 


•S.  GIVijtfO   AND   GETTING   CREDIT. 

ized  profits  of  the  past.  If  he  buys  upon  credit, 
he  utilizes  the  present  value  of  a  future  pay- 
ment. He  promises  to  pay  a  sum  of  money, 
and  gives  the  creditor  a  right  of  action  against 
him  if  he  fails  to  pay;  this  is  the  legal  basis  of 
credit.  If,  by  the  lapse  of  time,  or  a  bankrupt 
law,  he  is  legally  discharged,  the  obligation  is 
not  thereby  extinguished ;  the  creditor  is  merely 
denied  the  use  of  the  law  to  enforce  his  claim. 

Credit  neither  creates  nor  destroys  capital ;  it 
merely  transfers  to  the  debtor  the  property  of 
the  creditor,  and  one  is  plus  only  by  as  much 
as  the  other  is  minus. 

If,  for  example,  five  men  buy  from  each 
other,  consecutively,  a  thousand  dollars'  worth 
of  goods,  and  each  gets  the  note  he  receives 
discounted,  five  thousand  dollars  are  thus 
brought  into  circulation,  but  no  new  value  is 
created.  If  the  last  purchaser  fails  to  pay  his 
note,  and  none  has  surplus  capital,  the  loss 
of  a  thousand  dollars  must  run  along  the  line, 
and  each  becomes  bankrupt.  Yet  the  goods 
may  still  exist,  and,  except  in  the  confusion  and 
.distress  which  follow,  the  community  is  neither 
richer  nor  poorer  than  before. 


CREDIT   AND   MONEY.  9 

This  is  the  condition  of  affairs  when  credit 
becomes  too  much  expanded  and  the  crash  of 
widespread  bankruptcy  sponges  the  slate.  It 
shows  that  the  credit  system  is  a  vast  series  of 
mutual  dependencies,  and  that  the  solvency  of 
merchants  rests  largely  upon  that  of  their 
neighbors. 

Credit  is  a  tax  upon  labor,  because  prices  on 
credit  are  higher  than  for  cash.  Those  who 
take  credit  and  pay,  are  charged  to  make  up 
average  losses  from  those  who  do  not  pay. 
The  good  insure  the  bad,  so  to  speak,  and  cash 
discounts  show  the  cost  of  credit. 

No  one  becomes  bankrupt  who  does  not  owe. 
Credit  is,  therefore,  a  cause  of  bankruptcies.  » 

Credit  favors  extravagance  and  speculation. 
It  is  easy  to  spend  or  risk  money  which  has 
cost  neither  labor  nor  self-denial,  but  merely  a 
promise  to  pay  hereafter.  Social  economists 
say  that  a  family  which  buys  its  supplies  on 
credit  spends  much  more  than  if  it  pays  cash. 
Credit  stimulates  demand  and  raises  prices,  yet 
it  is  a  blessing  to  the  sick  or  unemployed  work- 
man, because  it  enables  him  to  draw  upon  the  i 
future  for  his  necessities. 


10  GIVING   AND   GETTING   CREDIT. 

Credit  pays  capital  for  permitting  itself  to  be 
employed  in  reproduction,  and  transfers  it  from 
hands  that  cannot  use  it  into  hands  that  can. 
It  enables  those  who  have  industry  but  no  cap- 
ital to  enjoy  the  advantages  of  both,  and  leads 
it  into  channels  through  which  commodities 
are  moved  over  the  civilized  world  from  pro- 
ducer to  consumer. 

Without  credit,  the  present  business  of  the 
world  could  not  be  transacted.  Not  all  the  gold 
ever  taken  from  the  earth  could  perform  its 
service. 

It  constructs  railways,  opens  mines,  improves 
farms,  and  builds  houses:  it  is  "the  soul  of 
commerce,"  an  agent  and  promoter  of  civili- 
zation wherever  human  energies  can  be 
exerted. 

Credit  is  the  fruit  of  a  settled  condition  and 
was  therefore  unknown  in  the  early  stages  of 
societjT.  It  has  succeeded  the  primitive  periods 
of  barter  and  money,  or  cash,  and  appears  only 
when  the  observance  of  contracts  is  enforced  by 
public  authority.  Wise  and  beneficent  credit 
follows  the  largest  personal  liberty,  but  is  op- 
posed to  every  form  of  misrule  and  anarchy, 


CREDIT   AND   MONEY.  11 

and  flourishes  best  under  the  wing  of  strong 
and  secure  government. 

It  is  estimated  that  from  ninety  to  ninety-five 
per  cent  of  the  world's  present  business  is  trans- 
acted upon  credit.  Daniel  Webster  declared 
that  "  credit  has  done  more  a  thousand  times  to 
enrich  nations  than  all  the  mines  of  all  the 
world." 

Real  or  metallic  money,  coined  by  public  au- 
thority, is  the  standard  measure  of  values  which 
denotes  and  carries  in  itself  an  exchangeable 
value  equal  to  that  of  the  average  quantity  of 
labor  required  to  mine  and  coin  its  metal.  It 
is  therefore  not  only  a  measurer  and  medium  of 
exchange,  but  an  object  of  exchange,  like  other 
products  of  labor  and  capital. 

It  is  this  intrinsic  property  which  insures  ab- 
solute confidence  in  it,  without  which  there  is 
sure  to  be  confusion  and  distress.  One  of  the 
chief  causes  of  the  panic  of  1893  was  that  while 
gold  and  silver  were  equal  in  legal=tender  qual- 
ities, their  relative  value  was  unstable.1 

1  Silver  dollars  are  an  unlimited  legal  tender  in  the 
United  States.  In  Great  Britain  silver  is  a  legal  tender 
for  forty  shillings.  A  legal- tender  dollar  contains  412£ 


12  GIVING   AND  GETTING  CREDIT. 

The  price  of  a  thing,  which  is  its  trade  or 
commercial  value,  may  fluctuate  according  to 
demand  and  supply ;  money  is  also  subject  to 
constant  oscillations  between  plenty  and  scar- 
city, but  it  is  supposed  to  stand  still  while  prices 
of  other  things  move.  As  a  gold  dollar  is  a 
unit  of  value,  we  cannot  think  of  it  as  worth 
more  or  less  than  a  dollar.  "Its  pulsations  of 
commercial  value  are  not  registered  in  itself, 
but  in  the  prices  of  staple  commodities;  in- 
crease their  supply  and  they  become  cheaper; 
increase  the  relative  quantity  of  money  and  they 
tend  to  rise  in  price.  If  business  stagnates,  less 
money  is  needed;  consequently  it  becomes  more 
abundant,  with  an  easy  rate  of  interest,  which 
encourages  enterprise  and  advancing  prices. 

Money  is  also  a  token  of  credit  for  labor  per- 

grains  of  standard  silver.  The  faith  of  the  Government 
is  pledged  to  maintain  its  current  parity  with  gold. 
The  "free  silver"  advocates  desire  that  the  Government 
shall  coin  all  the  silver  offered  by  any  person,  at  the 
ratio  of  sixteen  to  one  with  gold. 

The  Act  of  June  9th,  1879,  provided  that  the  subsidiary 
silver  coin  of  the  United  States  should  be  legal  tender 
in  all  sums  not  exceeding  ten  dollars.  Five-cent  nickel 
pieces  are  legal  tender  to  the  amount  of  25  cents ;  one- 
cent  pieces  to  the  amount  of  4  cents. 


CREDIT   AND   MONE.Y.  13 

formed.  Bastiat  says,  "  Money  is,  in  effect,  an 
order  to  pay  to  bearer  a  service  equal  to  that 
which  he  has  rendered  mankind."  Burke  called 
'gold  and  silver  "the  two  great  recognized 
species  that  represent  the  conventional  credit 
of  mankind." 

Paper  money  is  merely  a  promise  to  pay  in 
metallic  money.  Coin  money  is  the  standard, 
paper  money  the  instrument.  Being  more  con- 
venient, it  is  seldom  converted  into  coin  unless 
the  holder  becomes  alarmed. 

Perhaps  the  wealthy  actually  handle  less 
money  than  the  poorer  classes,  because  they 
deal  chiefly  by  credits.  They  exchange  the  title 
to  money.  They  deposit  checks  in  bank  and 
draw  checks  upon  it.  The  principal  function 
of  the  bank  is  to  transfer  credits  from  one  ac- 
count to  another,  and  it  neither  receives  nor 
pays  out  much  cash,  relatively  to  the  amount  of 
its  transactions.  It  has  been  said  that  the  bulk  of 
current  money  is  used  by  those  who  are  too  poor 
or  too  little  known  to  obtain  or  to  utilize  credit. 

Proportionally  less  money  is  now  required 
to  transact  the  world's  vastly  increased  volume 
of  business,  because  it  has  been  so  generally 


14  GIVING   AND   GETTING   CREDIT. 

superseded  by  credit,  with  its  implements  or 
machinery.  But  credit  must  rest  upon  some 
substantial  foundation,  some  absolute,  stable 
measure  and  representative  of  value,  and  to 
furnish  this  is,  in  these  days,  the  chief  func- 
tion of  money. 

As  confidence,  so  essential  to  credit,  is  best 
assured  where  personal  and  property  rights  are 
most  secure,  there  is  the  highest  civilization; 
there  also  is  the  largest  variety  of  pursuits; 
money  and  credit  are  most  active,  and  the  rate 
of  interest  lowest.  There,  therefore,  is  the 
greatest  demand  for  labor  and  the  most  abun- 
dant production. 

Credit  is  practically  the  rule  in  wholesale 
transactions  throughout  the  world,  while  money 
passes  chiefly  in  retail  trading,  or  in  payment 
for  labor.  It  is  obvious  that  the  abolition  of 
credit  would  mean  a  vastly  increased  demand 
for  money. 

It  is  to  be  noted,  however,  that  while  time 
transactions  may  still  maintain  their  relative 
proportion  in  general  wholesale  business,  the 
credit  system  is  undergoing  certain  important 
modifications.  During  the  last  few  years  there 


CREDIT   AND   MONEY.  15 

has  been  a  great  decline  in  the  price  of  most 
commodities,  and  to  secure  former  profits  a 
larger  bulk  of  goods  must  be  handled.  Increas- 
ing competition  adds  to  the  cost  of  effecting 
sales,  while  it  also  decreases  percentages  of 
profit.  Under  these  circumstances  manufac- 
turers and  merchants  find  it  necessary  to  elimi- 
nate risk  as  much  as  possible  from  their  deal- 
ings; hence  the  large  discounts  offered  for 
cash,  and  an  increasing  desire  to  curtail  the 
length  of  credits. 

Industry,  like  climate,  has  its  seed-time  and 
harvest,  and  the  consumption  of  its  annual 
products  has  its  natural  progression  and  its 
periodic  completion.  The  distribution  of  these 
products  under  the  credit  system  should  prop- 
erly conform  to  this  natural  order  of  production 
and  consumption.  So,  also,  shorter  credits 
should  follow  improved  transportation,  because 
goods  pass  more  quickly  from  producer  to  con- 
sumer. But,  in  fact,  long  credits  are  given 
rather  as  a  temptation  to  the  purchaser  than  as 
a  requirement  of  natural  conditions. 

Every  debt  implies  a  credit,  and  all  tho  debts 
are  equal  to  all  the  credits.  Debts  for  merchan- 


16  GIVING  AND  GETTING   CREDIT. 

dise  are  extinguished  by  selling  that  merchan- 
dise and  applying  to  them  the  proceeds.  Men 
buy  and  give  promises  to  pay,  they  sell  and  take 
promises  to  pay,  and  their  capital  or  credit  en- 
ables them  to  stand  in  the  gap  and  apply  those 
they  take  to  those  they  give.  It  virtually  re- 
quires all  the  credits  to  pay  all  the  debts. 

Experience  shows  that,  during  a  generally 
prosperous  condition  of  affairs,  credit  is  ex- 
panded until  a  fever  of  speculation  culminates, 
and  debts  are  incurred  by  "booming"  towns, 
building  railways,  and  similar  projects.  But 
when  the  mercantile  community  has  been  se- 
duced into  devoting  any  considerable  proportion 
of  its  credits  to  purposes  outside  its  natural 
channels,  the  process  of  adjustment  is  deranged 
and  confidence  gives  way  to  distrust  with  its 
train  of  evils.  Our  periodical  panics  have  in 
fact  been  born  less  of  adversity  than  of  the 
abuse  of  prosperity. 

Again ;  it  is  impossible  that  the  entire  debts 
of  a  community  could  be  paid  at  once.  The 
ability  to  pay  depends  on  the  gradual  and  regu- 
lar manner  in  which  they  mature,  and  the 
amounts  paid  to-day  render  possible  to  the 


CREDIT  AND   MONEY.  17 

business  world  its  payments  of  to-morrow. 
Each  line  of  trade  establishes  for  itself  its  cus- 
tomary terms  of  credit.  If  it  were  the  general 
custom  to  extend  a  credit  of  four  months  to 
purchasers  in  the  boot  and  shoe  trade,  for  in- 
stance, and  a  material  quantity  of  intermediate 
credits  of  eight  months  be  granted,  a  link  is 
broken  in  the  chain. 

Bankers  complain  that  "  an  adequate  supply 
of  business  paper  is  yearly  becoming  more  diffi- 
cult to  obtain."  Some  trades,  notably  those 
which  deal  in  staple  products,  the  rubber,  the 
jewelry,  and  a  few  other  lines,  still  largely  re- 
tain the  old-fashioned  system  of  settlement  by 
notes;  but  merchandise  is  now  chiefly  sold  on 
open  account.  So  common  has  this  practice 
become  that  the  offer  of  a  bunch  of  small  notes, 
as  bills  receivable,  for  discount,  is  sometimes 
held  by  bankers  to  signify  a  "needy  condition." 

At  least  two-thirds  of  all  the  paper  bought 
by  banks  and  capitalists  in  New  York  is 
"  single  name"  paper.  It  is  generally  preferred 
by  them  to  "  double  name"  paper,  because  the 
simple  and  direct  promise  to  pay  of  a  concern 
whose  character  and  resources  are  known  and 


18  GIVING   AND   GETTING   CBEDIT. 

approved,  is  deemed  safer  than  a  shared  respon- 
sibility which  may  introduce  some  devious  fea- 
ture of  accommodation  for  both  maker  and 
indorser. 1 

It  is  no  longer  considered  "  kiting"  for  houses 
in  good  credit  to  sell  their  notes,  and  with  the 
avails  secure  cash  discounts  on  purchases.  It 
is  even  currently  said  that  if,  in  ordinary  j'ears, 
merchants  in  some  lines  of  trade  cannot  float 
their  single  name  paper  and  buy  for  cash,  they 
are  "undesirable  as  customers."  But  there  are 
many  concerns  which  enjoy  excellent  credit  in 
mercantile  circles,  whose  paper  cannot  be  sold 
to  banks  and  capitalists,  because  it  is  not  known 
to  the  note-brokers. 

An  enormous  volume  of  paper  is  kept  afloat 
by  some  large  houses,  and  they  cannot  afford  to 
withdraw  their  names  from  the  street,  even 
though  they  have  no  use  for  the  money.  Credit 
unused  grows  rusty.  "It  is  now,"  says  a 

1 M.  Leon  Say  avers  that  the  best  form  of  credit  for 
banking  purposes  is  purely  personal  credit:  "Le 
credit  tout  court  sans  phrase.  Le  credit  sur  gage  n'a 
jaraais  ete  que  1'enfance  du  credit.  Le  credit  public 
n'existaitquandles  rois  empruntaient  surleurs  reliques 
ou  sur  les  bijoux. " 


CREDIT   AND    MONEY.  19 

banker,  "a  prevalent  idea  among  merchants 
that  a  concern  which  does  not  place  its  paper 
in  the  open  market,  or  use  bank  facilities,  is 
not  in  first-class  credit."1 

Chartered  trust  companies  and  savings  banks 
are  forbidden  by  law  to  loan  on  single  name 
paper;  large  amounts  are,  however,  passed  into 
loans  by  some  of  these  institutions,  through 
brokers,  with  "straw"  indorsements.  National 
banks  are  not  thus  restricted. 

There  are  some  who  think  that  later  on,  in 
accordance  with  specialization,  or  the  division 
of  labor  principle,  the  special  and  peculiar 
concern  of  the  manufacturer  will  be  more  to 
fabricate,  and  of  the  merchant  to  distribute,  and 
that  the  credit  of  both  will  increasingly  centre 
in  the  banker.  In  other  words,  it  may  become 
still  more  his  function  to  measure  the  responsi- 
bility of  the  others  and  supply  them  with  cash 
for  their  dealings.  But  it  is  unlikely  that  any 


1  It  will  be  understood  that  the  movement  of  com- 
mercial affairs  under  exceptional  conditions,  such  as 
have  existed  during  the  present  business  depression, 
may  not  indicate  their  general  drift  or  tendency.  "  All 
signs  fail  in  dry  weather." 


20  GIVING   AND   GETTING   CREDIT. 

system  will  ever  prevail  extensively  which 
brings  a  financial  intermediary  between  the 
simple  and  natural  credit  relations  of  buyer  and 
seller,  unless  under  some  form  of  guarantee. 

Nor  is  the  banker,  as  a  rule,  as  well  qualified 
by  circumstances  to  estimate  the  responsibility 
of  an  applicant  for  credit  as  the  man  from  whom 
he  buys  his  goods.  It  is  an  old  saying  in  the 
business  world  that  "  if  you  wish  to  know  any- 
thing about  a  bank's  customer,  don't  ask  the 
bank."  The  merchant's  relations  with  his  cus- 
tomer are  closer.  He  knows  whether  he  is  a 
prudent  buyer  and  a  good  business  man,  and 
his  ledger  account  shows  the  degree  of  prompt- 
ness with  which  he  has  met  his  payments  and 
the  manner  of  his  dealing.  All  this  knowledge 
the  banker  can  only  obtain  at  second-hand. 

Aside  from  the  fact  that  there  is  less  risk  in 
granting  a  short  credit  than  a  long  one,  there 
is  also  more  profit  in  the  nimble  sixpence,  or 
the  more  frequent  turning-over  of  capital.  It  is 
interesting  to  see  the  figures;  for  example,  a 
thousand  dollars  turned  over  once  each  year 
with  accrued  profits,  for  five  years,  reckoning 
the  profit  on  each  investment  or  sale  at  twenty 


CREDIT   AND  MONEY.  21 

per  cent,  will  give  an  aggregate  of  $2,488,32. 
The  same  sum  turned  over  twice  each  year,  for 
five  years,  under  the  same  conditions,  will 
amount  to  $6,191.74;  and  three  times  yearly  to 
$15,407.02;  in  another  year,  or  in  six  years,  the 
thousand  dollars  will,  under  the  same  condi- 
tions, if  turned  over  three  times  yearly,  aggre- 
gate $26,623.33  as  against  but  $8,916.10,  if  in- 
vested but  twice  a  year. 


CHAPTER  II. 

OF  FAILURES  AND   CHANGES   IN   BUSINESS   CON- 
DITIONS. 

ON  the  Canton  River  numbers  of  people  live 
in  house-boats,  or  sampans,  and  raise  water- 
fowl, which  are  taught,  upon  a  signal,  to 
scurry  home  to  the  boat  as  fast  as  possible. 
But  some  one  of  the  ducks  and  geese  must  be 
the  last  to  get  in,  and  that  unfortunate  is  always 
punished.  And  so  among  business  men;  some 
failures  will  surely  occur  because  it  is  not 
in  the  nature  of  things  that  all  can  succeed. 
All  in  trade  are  liable  to  casualties  and 
reverses  which  imply  no  crime,  and  which 
the  average  sagacity  can  neither  forecast  nor 
avert. 

A.nd  there  appears  to  be  as  practical  uniform- 
ity in  the  number  of  business  failures,  propor- 
tioned to  the  "  business  population,"  in  a  series 

of  years,  as  in  the  social  phenomena  of  mar- 

22 


FAILURES   AND   CHANGES.  23 

riages,  births,  deaths,  suicides,  etc.,  in  propor- 
tion to  tHe  general  population.1 

There  is  much  disparity  in  the  proportion  of 
losses  by  bad  debts  in  the  various  kinds  of  busi- 
ness, and  it  is  difficult  to  obtain  facts  upon 
which  to  base  calculations  of  the  average  per- 
centage of  net  loss  on  the  total  volume  of  credit 
sales  of  merchandise.  Some  estimates  have 
placed  it  as  high  as  T\5o-  of  one  per  cent,  others 
as  low  as  T4o°o-  of  one  per  cent.  Probably  it  lies 
somewhere  in  the  mean,  but  we  shall  never 
know  how  near  we  are  to  the  truth  of  the  mat- 
ter until  we  have  reliable  data  upon  which  to 
generalize  and  reckon.  We  do  know,  however, 
that  about  one  concern  in  ninety  fails  annually, 
on  the  average,  and  statistics  show  also  the  ag- 
gregate liabilities  of  all  failed  concerns  and  their 
assets. 

A  French  economist  reckons  that  ten  out  of 
every  hundred  who  enter  business  succeed,  fifty 
vegetate,  and  forty  become  bankrupt.  It  has 
been  lately  calculated  that  in  the  United  States 

1  The  expectation  of  everywhere  discovering  regularity 
in  the  midst  of  confusion  has  now  become  an  article  of 
faith  with  the  most  eminent  scientific  men. 


24  GIVING   AND   GETTING   CKEDIT. 

ninety-five  per  cent  of  the  business  men  "fail 
to  succeed."  Things  in  business  go  chiefly  by 
law,  and  not  by  luck;  the  fittest  only  survive, 
and  at  least  eighty  per  cent  of  those  who  fail, 
with  liabilities  exceeding  assets,  can  find  in 
themselves  the  causes  of  their  failure. 

The  Mercantile  Agency  approximates  the 
total  number  of  commercial  failures  in  the 
United  States  during  the  last  thirty-eight  years, 
or  from  1857  to  1894  inclusive,  at  252,524,  with 
liabilities  amounting,  in  round  numbers,  to  $5,- 
500,000,000.  These  constant  losses  have  fallen 
upon  the  mercantile  community  sometimes  as 
noiselessly  as  snowflakes,  and  again  fitfully,  in 
gusts  and  swirls.  Some  idea  may  perhaps  be 
had  of  the  amount  of  new  business  necessary  to 
be  transacted  in  order  to  retrieve  them. 

Such  an  aggregate  gives  one  a  feeling  of  re- 
spect for  that  cautious  and  thoughtful  Dutch- 
man, who  sold  his  goods  lower  on  credit  than 
for  cash,  in  order  to  cut  down  his  risk  from  bad 
debts.  These  figures  show  the  average  liabil- 
ities of  each  failure  to  be  about  $20,000. 

No  data  is  obtainable  to  show,  even  with  ap- 
proximate accuracy,  what  proportion  of  this 


FAILURES   AND   CHANGES.  25 

vast  sum  was  finally  paid  to  creditors,  or  what 
relation  it  bears  to  the  total  volume  of  business 
transacted  upon  credit  during  this  period. 
These  and  many  kindred  statistical  facts,  care- 
fully gathered,  analyzed,  and  considered  in  their 
relation  to  currency,  tariffs,  and  other  varying 
political  and  financial  conditions,  would  cer- 
tainly be  of  practical  benefit  to  the  business 
world  and  useful  to  public  men,  as  a  basis  for 
induction  to  great  and  guiding  principles. 

The  history  of  commercial  affairs  during  the 
last  fifty  or  sixty  years  demonstrates  that  busi- 
ness in  the  United  States  has  three  phases,  viz., 
prosperity,  panic,  and  reorganization,  or  liqui- 
dation and  settlement,  and  that  we  have  been 
relatively  prosperous  about  three-quarters  of  the 
time.  There  seems  to  be  a  rhythmic  oscillation 
toward  a  period  of  extreme  depression  about 
every  tenth  or  twelfth  year. 

These  facts  are  suggestive.  There  are  times 
when  a  prudent  merchant  will  take  warning 
from  the  past ;  seasons  when  he  should  be  ad- 
vised that  a  panic  is  "due."  Again,  after  a 
panic,  when  the  liquidation  has  been  radical 
and  complete,  he  may  reasonably  expect  a 


26  GIVING   AND   GETTING    CKEDIT. 

period  of  comparative  safety  for  expanding 
enterprise. 

It  is  often  asserted  that,  in  credit  dealings,  a 
poor  man  who  is  honest  is  safer  than  a  richer 
one  whose  good  faith  is  not  assured.  Certainly, 
men  possessing  a  talent  for  business  can  often 
largely  increase  the  energy  and  effectiveness  of 
even  a  small  capital  and  come  safely  off.  Cap- 
tains like  Napoleon  have  led  a  handful  of  sol- 
diers to  victory  against  overmatching  battalions, 
and  many  a  poor  man  with  superior  qualities 
has  struggled  against,  great  odds  to  the  very 
front  rank  of  fortune  and  credit;  and  many 
more  will  do  so. 

But  Mercantile  Agency  returns  show  that,  in 
recent  years,  downright  dishonesty  is  a  less  im- 
portant factor  in  mercantile  losses  than  "  lack 
of  capital  and  capacity,"  which  are  held  to  ac- 
count for  about  "  three-fifths  of  the  total  num- 
ber of  business  failures,  and  three-quarters  of 
the  aggregate  liabilities."  Too  many  are  like 
Artemus  Ward  when  he  "  tried  to  do  too  much 
and  did  it." 

Therefore  simple  probity,  which  means 
proved  honesty,  while  a  great  strengthener  of 


FAILURES   AND   CHANGES.  27 

confidence,  cannot  be  generally  accepted  as  a 
sufficient  basis  for  extensive  credit.  It  is  evi- 
dent that  capital  and  capacity  should  also  be 
cardinal  considerations. 

A  man  with  tangible  means  has  a  hostage  in 
sight.  His  property  is,  in  a  manner,  collateral 
security  that  he  can  and  must  fulfil  his  engage- 
ments. The  first  steps  to  wealth  are  difficult; 
its  accumulation  implies  sagacity,  experience, 
and  thrift,  or  the  valuable  habit  of  saving, 
and  its  owner  usually  becomes  more  cautious 
and  conservative  than  one  who  has  no  capital 
to  lose.  Cynical  observers  say  that  men  in 
comfortable  circumstances  are  also  less  liable 
to  do  crooked  things  than  those  who  are  pinched 
for  money,  because  they  are  less  tempted. 

Those  who  with  a  large  capital  do  an  unsafe- 
ly large  business  are  proportionately  less  nu- 
merous than  those  who  carry  too  much  sail  on 
a  limited,  or  small,  capital,  and  they  are  apt  to 
be  in  a  relatively  better  position  to  secure 
quicker  and  stronger  support  in  time  of  need 
than  the  smaller  concerns.  Changed  and 
changing  business  conditions  render  it  constant- 
ly more  difficult  to  succeed,  without  sufficient 


28  GIVING   AND   GETTING   CREDIT. 

capital  and  business  aptitude,  and  they  tend 
also  to  limit  losses  by  hastening,  as  never  be- 
fore, the  almost  inevitable  catastrophe. 

Steam  and  electricity  have  changed  the  rela- 
tions of  men.1  The  range  of  affairs  to  be  over- 
seen is  immensely  widened.  We  are  now  in 
quick  touch  with  all  the  world,  and  every  im- 

1  It  is  stated  as  a  significant  instance  of  economic  pro- 
gress that  the  works  at  Niagara  Falls  will,  when  com- 
pleted, furnish  and  distribute  as  electricity  "an amount 
of  power  available  for  manufacturing  purposes,  equal- 
ling, if  not  exceeding,  the  aggregate  amount  of  steam 
and  water  power  in  use  in  all  industries  in  the  United 
States  as  reported  by  the  census  of  1880."  The  passing 
age  of  steam  bequeathes  to  us  the  coming  age  of  elec- 
tricity, and  probably  the  dreams  of  to-day  will  be  the 
substantial  realities  of  to-morrow. 

In  a  recent  issue  of  The  North  American  Review,  the 
English  statistician  and  political  economist,  Professor 
Mulhall,  says :  "If  we  take  a  survey  of  mankind  in  an- 
cient or  modern  times  as  regards  the  physical,  mechan- 
ical and  intellectual  force  of  nations,  we  find  nothing 
to  compare  with  the  United  States  in  this  present  year 
of  1895.  At  the  same  time  we  see  that  the  wealth  of 
the  American  people  surpasses  that  of  any  other  nation, 
past  or  present.  .  .  .  The  United  States  in  1895  possesses 
by  far  the  greatest  productive  power  in  the  world ;  ihis 
power  has  more  than  trebled  since  1860 ;  the  intellectual 
progress  of  the  nation  is  attended  to  in  a  more  liberal 
manner  than  in  Europe,  and  the  accumulation  of  wealth 
averages  $7,000,000  daily." 


FAILURES   AND   CHANGES.  29 

provement  in  communication  and  transporta- 
tion, and  each  labor-saving  invention,  adds  to 
the  delicacy  of  trade  calculations.  Prices  fluc- 
tuate within  narrower  limits  then  formerly,  but 
the  element  of  speculation  is  still  a  factor  to  be 
considered  in  manufacture  or  importation. 
New  facilities  sweep  by  old  ones  and  distance 
them,  and  possibility  of  invention,  labor  condi- 
tions, demand,  and  competition  are  all  con- 
stantly more  uncertain.  A  single  mistake,  or 
misadventure,  may  sweep  away  the  enterprising 
man  with  small  capital. 

And  there  is  a  curious  disproportion  between 
causes  and  effects,  which  is  natural  perhaps, 
because  the  public  imagination  is  whimsical 
and  not  governed  in  its  conclusions  by  laws  like 
those  which  control  ants  and  bees.  A  great  as- 
tronomer said,  he  could  calculate  the  motions  of 
erratic  stars,  but  not  the  opinions  of  men.  For 
example,  an  event  logically  calculated  to  pro- 
duce a  certain  movement  of  prices  upon  the 
exchange,  appears  often  to  affect  them  in  an 
opposite  and  most  unexpected  manner. 

If  harvests  are  scanty,  the  products  may  sell 

for  more  than  if  they  were  abundant;  a  small 
3 


30  GIVING   AND   GETTING   CREDIT. 

crop  often  brings  more  than  a  large  one;  and 
when  abundant  the  price  may  decline  so  that 
less  can  be  realized  upon  the  whole  product  by 
an  amount  many  times  the  value  of  the  surplus. 
And  so  in  many  things.  The  most  sagacious 
must  often  grope  their  way,  because  at  times 
future  events  and  prices  can  as  little  be  conjec- 
tured as  if  they  depended  wholly  on  chance. 

Yet,  after  all,  in  intricate  and  perplexing  con- 
ditions the  advantage  remains  with  the  master 
mind.  And  it  is  a  corollary  of  the  growth  of 
such  conditions  in  industrial  pursuits  that  a 
constantly  increasing  tribute  is  paid  to  superior 
business  ability  and  training. 

In  earlier  and  simpler,  and  perhaps  happier, 
times,  creditors  and  debtors  came  nearer  to- 
gether. Merchants  and  customers  became 
friends ;  they  looked  into  each  others'  eyes  and 
discussed  resources,  advantages,  and  prospects. 
But  in  late  years,  this  pleasant  and  beneficial 
contact  has  become  less  frequent.  We  have  no 
personal  acquaintance  with  a  large  proportion 
of  the  people  we  deal  with. 

In  the  complex  march  of  modern  affairs,  busi- 
ness has  become  more  mechanical.  We  deal 


FAILURES  AND   CHANGES.  31 

less  with  men  than  with  things.  We  have  lost 
the  personal  equation  of  our  customers,  or  get 
it  only  at  second-hand.  The  name  of  a  debtor 
or  creditor  on  our  books  is  only  a  symbol  which 
might  as  well  be  represented  by  a  number. 

This  transition  has  reached  even  local  lines  of 
business.  One  of  the  largest  livery-stable  pro- 
prietors in  New  York  says  that  ten  years  ago  he 
knew  all  his  customers  personally,  while  now 
he  practically  knows  none  of  them,  all  his  busi- 
ness being  transacted  through  the  labor-saving 
telephone. 

Thus  intuitions,  personal  knowledge  of 
human  nature,  and  judgment  of  individual 
character  can  be  no  longer  accounted  as  helpful 
factors  in  determining  credit,  in  the  majority 
of  cases.  The  trader  is  also  deprived  of  the 
personal  interest  and  counsel  of  the  merchant, 
and  if  disaster  overtakes  him  he  has  none  of 
the  regrets  of  friendship  for  the  losses  of  a  man 
whom  he  never  knew.  His  honor  becomes  an 
abstract  sentiment  without  the  strengthening  of 
a  social  compact,  and  his  course  is  more  liable 
to  be  swayed  by  the  fitful  winds  of  his  own  per- 
sonal advantage. 


32  GIVING  AND  GETTING  CREDIT. 

But  there  are  also  compensations  in  modern 
progress.  It  has  multiplied  sources  of  infor- 
mation in  regard  to  men  and  their  affairs,  so  that 
their  home  reputation,  resources,  and  the  man- 
ner of  their  dealing  can  easily  and  quickly  be 
known.  The  knave  can  no  longer  hide  himself ; 
the  shadow  of  a  fraudulent  failure  follows  him 
to  the  remotest  village  or  cross-road,  and  his 
unsavory  record  confronts  him  whenever  and 
wherever  he  again  asks  credit.  Nor  can  he 
who  has  shown  himself  incapable  or  negligent 
when  entrusted  with  the  property  of  others, 
altogether  conceal  the  facts.  He  must  show 
that  he  has  gained  wisdom  and  prudence  before 
he  will  be  held  as  again  entitled  to  substantial 
confidence  and  credit. 

On  the  other  hand,  he  who  is  overwhelmed 
through  no  fraud  or  folly  of  his  own,  finds  his 
record  for  probity  and  ability  an  unforgotten 
and  helpful  force  to  put  him  again  upon  his  feet. 
Yet  it  must  be  confessed  that  poverty  often 
seems  to  get  more  punishment  than  crime. 
We  have  all  seen  men  whose  "  debts  were  the 
only  measure  of  their  profits,"  and  who  flourish 
on  fraud.  They  fail,  force  a  compromise,  and 


FAILURES  AND  CHANGES.  33 

with  their  booty  start  afresh.  They  ride  while 
their  creditors  travel  afoot.1 

We  have  also  seen  cases  where  men  have 
made  an  unfortunate  rather  than  a  fraudulent 
failure,  and  who,  after  giving  up  all  and  strug- 
gling for  years  to  obtain  another  footing,  have 
finally  gone  into  hopeless  oblivion.  They  could 
obtain  no  credit  because  they  were  destitute, 
and  remained  destitute  because  they  could  ob- 
tain no  credit. 

These  causes  are  often  pitiable.  To  feel  hon- 
est poverty  is  bad  enough,  but  there  is  a  deeper 


1 A  thief  who  had  grown  gray  in  the  exercise  of  his 
profession  at  length  declared  himself  warmly  in  favor 
of  the  proposition  that  "Honesty  is  the  best  policy." 
The  reasons  he  gave  for  his  conversion  were  substanti- 
ally as  follows  :  He  had  known  two  crooks  who  became 
tired  of  doing  time  in  prison,  and  they  agreed  with 
each  other  that  when  they  got  out  they  would  be 
"  honest. "  So,  upon  their  release,  they  went  to  another 
city  and  began  a  legitimate  business.  By  dint  of  in- 
dustry and  promptness  in  meeting  their  obligations  they 
prospered,  and  at  length  built  up  such  a  credit  that  they 
succeeded  in  obtaining  merchandise  to  the  value  of  a 
hundred  thousand  dollars !  Then  they  sold  the  goods 
and  skipped  out  with  the  proceeds. 

"They  couldn't  have  done  it,"  said  the  old  thief,  "if 
they  hadn't  been  honest." 


34  GIVING  AND   GETTING   CREDIT. 

pang  when  we  are  made  to  realize  that  we  have 
not  sufficient  merit  to  retrieve  our  circum- 
stances, and  that  the  world  has  hopelessly  for- 
gotten us.  But  in  such  a  state  of  affairs,  as 
Mr.  Lincoln  said  of  himself  during  the  darkest 
days  of  the  War,  we  "  need  success  rather  than 
sympathy." 

It  will  generally  be  found,  however,  that  in 
the  latter  class  of  cases  there  is  a  deficiency  of 
pluck,  energy,  or  balance,  and  in  the  former, 
that  the  perpetrators  of  such  frauds  possess 
qualities  which  would  have  ensured  to  them  a 
greater  degree  of  prosperity,  had  they  been  hon- 
est and  avoided  the  stigma  of  dishonorable  fail- 
ure. Observation  and  experience  teach  pru- 
dent merchants  that  one  successful  crime  sooner 
or  later  invites  to  the  commission  of  another, 
and  they  cannot  afford  to  forget.  It  is  a  clumsy 
rogue  who,  in  these  days,  fails,  in  order  to 
make  money.  He  cannot  cover  his  tracks. 
There  are  smoother  paths  of  robbery. 

When  the  year's  bad  debts  are  charged  off  to 
profit  and  loss,  the  merchant  may  console  him- 
self with  the  thought  that  the  lessons  he  has 
learned  will  make  him  more  cautious  in  the 


FAILUBES   AKD   CHANGES.  35 

future.  He  thinks  that  experience  has  satu- 
rated him  with  wisdom.  But  experience  has 
been  likened  to  the  stern-lights  of  a  ship,  which 
illuminate  only  the  path  it  has  gone  over.  The 
conditions  of  yesterday  never  return ;  dealings 
with  one  have  little  prophetic  value  in  dealing 
with  another;  the  next  loss  may  come  under 
totally  different  circumstances,  and  from  a 
direction  entirely  unsuspected. 

Human  activities  present  such  a  tangled  coil ; 
character  and  conditions  vary  so  greatly,  that 
particular  decisions  respecting  men  and  their 
affairs  have  no  universal  application.  All  losses 
are  exceptional.  We  never  sell  goods  that  we 
do  not  expect  to  be  paid  for.  It  is  the  unex- 
pected which  makes  bad  debts. 

As  confusion  sometimes  exists  in  regard  to 
the  meaning  of  the  words  Insolvency,  Failure, 
and  Bankruptcy,  it  may  be  well  to  define  them. 
Insolvency  is  a  state,  or  condition ;  Failure  an 
act  flowing  out  of  that  state ;  Bankruptcy  the 
effect  of  that  act.  A  man  who  is  insolvent  can- 
not pay  his  debts  in  full ;  one  who  fails  ceases 
to  pay.  The  bankrupt  is  strictly  a  trader  who 
is  "bank  broken,"  and  who  legally  surrenders 


36  GIVING  AND   GETTING   CBEDIT. 

his  property  into  the  hands  of  his  creditors. 
Bankruptcy  is  a  legal  act  which  dissolves  the 
firm.  Insolvency  signifies  more  than  bank- 
ruptcy. A  concern  may  fail  and  become  bank- 
rupt and  yet  not  be  insolvent,  for  the  estate  may 
pay  in  full ;  and  many  a  man  who,  if  pressed  to 
liquidate,  would  be  found  solvent  only  as  snow 
in  the  sun  is  solvent,  may  never  fail  or  become 
bankrupt.1 

1  An  insolvent  law  is  essentially  a  law  by  which  a 
debtor  is  exempted  from  liability  to  arrest  or  imprison- 
ment for  debt  previously  contracted,  on  condition  of  his 
delivering  up  all  his  property  for  the  benefit  of  his 
creditors. 

Distinctions  between  bankruptcy  and  insolvency  have 
been  practically  abandoned  in  this  country,  yet  enact- 
ments of  State  legislatures  for  the  relief  of  debtors  are 
still  called  insolvent  laws,  those  of  the  General  Govern- 
ment bankrupt  laws. 

Chief  Justice  Marshall  says :  "  A  bankrupt  law  may 
contain  those  regulations  which  are  generally  found  in 
insolvent  laws,  and  an  insolvent  law  may  contain  those 
which  are  common  to  a  bankrupt  law. " 


CHAPTER  III. 

SUGGESTIONS  AND    PRECAUTIONS. 

INTELLIGENT  business  men  now  broadly  rec- 
ognize that  both  the  ethics  and  the  policy  of 
trade  require  them  to  make  known  their  finan- 
cial position.  It  is  a  practice  to  be  encouraged, 
because,  as  it  becomes  general,  it  tends  to  sup- 
press blind  and  undeserved  credit  risks  which 
so  often  lead  to  irritating  losses,  while  it  helps 
to  fortify  the  business  world  against  panics,  by 
giving  it  more  exact  knowledge  .of  debtors' 
resources,  and  therefore  greater  confidence  and 
stability. 

A  man  in  good  circumstances  who  refuses  to 
reveal  his  condition  renders  it  impossible  for  his 
banker,  his  .references,  or  the  mercantile  agen- 
cies to  speak  with  certainty  in  regard  to  his 
affairs.  His  reticence  may  naturally  raise 
doubt  and  indirect  inquiry,  and  it  generally  de- 
prives him,  in  some  measure,  of  that  valuable 
37 


38  GIVING   AND   GETTING   CREDIT. 

confidence  and  credit  which  he  might  other- 
wise be  justified  in  expecting.  Nor  can  he  as 
surely  and  quickly  obtain  financial  help  in  time 
of  need  if  his  resources  are  unknown  or  merely 
conjectured. 

A  prominent  New  York  bank  official,  of  long 
experience,  asserts  that  "  an  applicant  for  credit 
should  be  willing  to  make  a  full  and  frank 
showing  in  writing  over  his  signature,  and  if 
he  declines  to  do  so,  I  believe  that  we  should 
give  no  consideration  to  his  application  for  dis- 
count. After  gathering  careful  statistics  on  the 
subject,  I  have  reached  the  conclusion  that 
when  a  borrower  refuses  absolutely  to  give  any 
information  in  this  way,  his  credit  is  impaired 
and  it  is  only  a  question  of  time  when  misfor- 
tune will  overtake  him.  There  is  no  concern 
that  does  any  amount  of  business  that  at  some 
time  in  its  history  does  not  need  the  help,  confi- 
dence, and  co-operation  of  its  bank,  and  nothing 
should  be  concealed  from  it." 

In  a  recent  address  before  the  Illinois  Bankers' 
Association,  Hon.  S.  S.  Lacy,  ex-Comptroller 
of  the  Currency,  and  president  of  the  Bankers' 
National  Bank  of  Chicago,  said : 


SUGGESTIONS  AND   PRECAUTIONS.  39 

"  The  age  of  mystery  as  related  to  business 
affairs  is  happily  passing  away.  The  time  was 
when  business  men  considered  it  akin  to  an  in- 
sult to  be  called  upon,  when  asking  credit,  for  a 
statement  of  their  affairs.  Fortunately  wiser 
and  sounder  views  now  prevail,  and  no  right- 
minded  man  or  well-managed  institution  now 
hesitates,  when  asking  favors,  to  place  the 
prospective  creditor  in  full  possession  of  the 
facts  upon  which  credits  can  be  intelligently 
extended." 

In  February  last  (1895),  the  Executive  Coun- 
cil of  the  New  York  State  Bankers'  Association 
passed  a  resolution  recommending  to  banks 
throughout  the  State  the  procuring  from  bor- 
rowers of  written  statements  showing  their  as- 
sets and  liabilities.  It  was  asserted  that  if  this 
measure  were  generally  adopted  by  banks  and 
bankers,  they  could  act  with  more  adequate 
knowledge,  and  therefore  with  greater  security, 
and  that  it  would  also,  in  effect,  "eliminate 
from  the  mercantile  community  borrowers 
whose  standing  and  credit  are  now  a  menace 
to  reputable  merchants." 

It  is  certainly  a  sound  business  principle  that 


40  GIVING   AND   GETTING   CREDIT. 

he  who  is  asked  for  credit  is  justified  in  mak- 
ing the  applicant  prove  that  he  is  worthy  of  it, 
and  that  the  latter  is  bound  to  furnish  forth  all 
essential  facts  in  aid  of  the  investigation  which 
he  virtually  challenges. 

This  principle  would  be  insisted  upon  univer- 
sally by  merchants  if  sellers  were  as  much  in  de- 
mand as  buyers,  and  could  afford  to  be  as  inde- 
pendent. But  competition  is  keen,  and  all  are 
eager  to  sell  goods,  to  keep  things  moving,  and 
to  reap  profits.  The  buyer  generally  holds  the 
honors,  and  rules  are  apt  to  bow  before  him  as 
"nice  customs  courtesy  to  great  kings." 

If  an  applicant  for  mercantile  credit  declines 
to  answer  reasonable  inquiries,  or  is  restive 
under  them,  it  is  a  natural  inference,  but  not 
always  a  certain  conclusion,  that  he  wishes  to 
conceal  something  unfavorable.  He  may  be 
eccentric,  and  yet  solvent  and  prompt  of  pay. 
He  may  object  from  pride  or  from  prejudice. 
He  is,  perhaps,  unreasonably  sensitive  about 
having  his  credit  investigated.  He  may  be  re- 
luctant to  make  known,  not  how  poor,  but  how 
rich  he  is.  Possibly  he  is  mindful  of  the  in- 
come tax,  or  shy  on  account  of  his  property 


SUGGESTIONS   AND   PEECAUTIONS.  41 

taxes.  There  are  responsible  men  who  appear 
to  regard  interrogatories  in  regard  to  their 
affairs  as  so  many  impertinent  conundrums. 
Others  assume  that  it  implies  ignorance  not  to 
know  their  standing,  and  affect  to  be  irritated 
when  it  is  questioned.  And  there  are  some,  reti- 
cent by  nature,  who  believe  in  a  "still  hunt." 

But  the  real  thing  is  not  as  likely  to  be  mis- 
taken for  a  sham,  as  a  sham  for  the  real  thing; 
and  the  cranky,  reticent  man  is  never  as  danger- 
ous as  the  plausible  rogue  who  can  prove  as 
much  as  anybody  will  believe. 1 

Nature  sometimes  withholds  stability,  judg- 
ment and  effectiveness  from  a  man,  and  by 
way  of  compensation  endows  him  with  a  most 
plausible  tongue.  But  if  the  applicant  for 
credit,  as  Hamlet  says,  "doth  protest  too 
much,"  it  operates  to  put  a  sagacious  merchant 
on  guard.  Nor,  on  the  other  hand,  will  he 
often  let  a  good  but  buttoned-up  customer  slip 
through  his  fingers,  because  he  cannot  learn 
that  he  is  responsible. 

1  The  United  States  Commissioner  of  Labor,  Carroll 
D.  Wright,  who  knows  all  about  statistics,  puts  it  that 
" figures  will  not  lie,  but  liars  will  figure." 


42  GIVING   AND   GETTING   CREDIT. 

The  logic  of  business  requires  that  capital 
should  be  kept  as  active  as  its  safe  and  legiti- 
mate employment  will  permit.  Except  as  a 
safety  reserve  there  should  no  more  be  idle  dol- 
lars than  idle  clerks.  Facilities  for  obtaining 
information  are  abundant,  and  he  who  neglects 
to  provide  himself  with  them  either  takes  blind 
risks,  or  limits  his  business  and  narrows  his 
profits. 

Men  in  trade  sometimes  say,  "I  don't  care 
about  my  credit,  I  buy  for  cash,"  forgetting 
that  a  great  advantage  of  the  capitalist  is  not 
altogether  his  hard  cash,  but  the  credit  his 
capital  commands,  which  many  times  multi- 
plies its  producing  power.  Many  a  concern 
has  failed  because  it  neglected  to  establish 
credit  when  it  was  not  needed,  that  it  might 
be  available  in  time  of  need. 

Chances  are  often  knowingly  taken  with  old 
patrons  which  would  not  for  a  moment  be  con- 
sidered from  new  applicants  for  credit.  We 
are  more  the  creatures  of  habit  than  we  realize, 
and  the  risks  we  are  familiar  with  are  apt  to  be 
minimized  against  our  better  judgment,  by  long 
intercourse  and  safe  dealing.  This  is  natural 


SUGGESTIONS  AND   PRECAUTIONS.  43 

and  kindly,  but  in  business  it  is  weak.  The 
unlucky  passengers  are  those  who  are  on  board 
when  the  ship  goes  down. 

A  merchant's  ledger  is  his  barometer,  so  to 
speak ;  it  often  indicates  that  a  storm  is  gather- 
ing. If  a  customer's  account  is  analyzed  and 
it  is  found  that  two  years  ago  he  discounted  his 
bills,  that  last  year  he  grew  tardy  in  his  pay- 
ments, that  he  pleads  for  "  dating,"  and  is  slower 
still  this  year,  there  is  some  reason  for  it.  Is  he 
doing  too  much  business  for  his  capital?  This 
can  be  ascertained.  Has  he  lost  his  money? 
If  not,  it  is  surely  not  in  the  right  place.  In 
either  case  it  is  time  for  the  merchant  to  take 
careful  bearings  and  perhaps  shorten  sail. 

Prudence  and  precaution  surely  do  not  con- 
flict with  the  Golden  Rule,  neither  do  they  im- 
ply truth  in  the  popular  but  atrocious  maxim 
that  there  should  be  "no  friendship  in  busi- 
ness." It  is  true  that  sharp  competition  is  not 
a  nourisher  of  sentiment  and  that  principle  is 
better  than  feeling.  Damon  and  Pythias  have 
become  rivals  in  the  race  for  money,  and  fin  de 
siecle  friendship  is  apt  to  be  more  a  matter  of 
calculation  than  of  emotion. 


44  GIVING   AND   GETTING    CREDIT. 

Yet  withal,  keeping  in  mind  Thoreairs  bon 
mot,  "Good  heart,  weak  head,"  cordial  and 
friendly  relations  are  quite  compatible  with 
strict  business  principles  and  mutually  benefi- 
cial. Trade  would  become  a  dismal  and  de- 
pressing pursuit  indeed,  if  all  kindly,  disinter- 
ested, and  generous  sentiments  were  to  be 
banithed  from  it. 

Admitting  that,  in  a  large  and  general  way, 
there  is  a  law  of  average  losses  from  bad  debts, 
it  can  have  no  bearing  upon  individual  risks, 
because  each  has  peculiar  circumstances  which 
call  for  the  exercise  of  special  scrutiny.  Giv- 
ing credits  upon  the  chance  that  only  a  certain 
percentage  will  turn  out  badly  is  like  shooting 
without  aim. 

As  eternal  vigilance  is  the  price  of  liberty,  so 
also  it  is  the  price  of  success  in  giving  credit. 
It  does  not  follow  that  because  a  man  has  paid 
many  times  he  will  pay  again.  Argus  eyes 
have  time  and  again  warded  off  serious  losses 
by  discovering  signals  of  "dry  rot,"  or  of  dis- 
tress, in  concerns  whose  solvency  was  not  ques- 
tioned in  the  community.  The  wisdom  of  fifty 
men  is  not  the  wisdom  of  one  multiplied  by 


SUGGESTIONS   AND   PRECAUTIONS.  45 

fifty.  If  the  one  is  alert  enough  to  discover  new 
and  leading  facts,  he  may  have  a  clearer  vision 
than  all  the  rest.  A  failure  seldom  occurs  that 
some  one  does  not  get  an  inkling  of  it  before- 
hand. 

The  majority  of  men  prefer  to  be,  and  mean 
to  be,  honest,  but  it  is  natural  to  be  hopeful  and 
to  present  the  most  sanguine  view  of  one's  own 
circumstances  and  prospects.  The  tendency  is 
to  advertise  profits  and  conceal  losses.  Men  do 
not  talk  of  ill  luck  until  near  the  end  of  the 
struggle.  Rumor  usually  magnifies  wealth  and 
soon  becomes  current  opinion.  Many  walk 
about  in  a  popular  halo  of  stocks  and  bonds 
who  cannot  pay  their  debts,  and  the  general  be- 
lief in  their  mythical  possessions  enables  them 
to  flourish,  at  least  for  a  time.  The  weakness 
of  the  credit  system  lies  in  the  fact  that  a 
man's  credit  depends,  not  upon  his  real  worth 
or  property,  but  upon  his  reputation  for  having 
it,  and  he  is  tempted  to  puff  himself. 

Neither  common  report,  good  birth,  good 
clothes,  good  address,  political  reputation,  fame, 
nor  evangelical  piety,  establishes  a  sufficient 
basis  for  credit.  Men  in  high  station  some- 


46  GIVING   AND   GETTING   CREDIT. 

times  have  a  hearty  contempt  for  their  pecu- 
niary obligations.  An  English  nobleman  said  of 
a  man,  that  he  had  muddled  away  his  fortune 
in  paying  tradesmen's  bills;  and  Pelham  argues 
that  it  is  respectable  to  be  arrested  for  debt,  be- 
cause it  shows  that  the  party  once  had  credit. 
Our  business  salvation  requires  that  we  walk 
by  facts  and  not  by  faith. 

Display  will  not  mislead  a  sensible  business 
man,  neither  will  excessive  liberality.  It  has 
been  said  that  there  is  perhaps  no  character  so 
seldom  met  with  as  that  of  a  man  who  is  strict- 
ly reasonable  in  the  value  he  sets  on  property ; 
who  can  be  liberal  without  profusion,  and  eco- 
nomical without  avarice.  The  chief  end  of  man 
is  not  to  accumulate  dollars,  but  the  majority 
of  men  cannot  pay  their  honest  debts  without 
being  frugal  and  saving;  and  those  who  gratify 
themselves  when  they  cannot  afford  it,  do  so  at 
the  expense  of  others.  Thrift  implies  the  habit 
of  sacrificing  present  enjoyment  for  future 
good. 

A  good  merchant  will  not  permit  his  confi- 
dence to  precede  knowledge,  or  his  action  to 
blunder  on  in  the  front  of  thought.  He  must 


SUGGESTIONS  AND   PRECAUTIONS.  47 

be  convinced,  not  merely  persuaded,  before  he 
will  entrust  his  property  to  others.  He  realizes 
that  giving  credit  implies  risk,  and  also  that  he 
is  not  in  business  altogether  for  his  health,  but  to 
make  reasonable  ventures  for  the  sake  of  profit. 
He  will  recollect  that  there  is  a  hundred-fold 
more  good  business  than  bad  in  the  world,  and 
while  he  makes  safety  the  chief  consideration, 
he  will  also  guard  against  the  weakness  of 
timidity  and  over-caution.  He  will  be  deliber- 
ate, but  enterprising  also  and  steadfast. 

The  cost  of  conducting  a  business  is  a  highly 
important  consideration ;  and,  as  a  general  rule, 
expenses  do  not  increase  in  proportion  with 
the  volume  of  business.  A  leading  Mercantile 
Agency  made  some  special  investigations  along 
this  line  at  the  request  of  a  New  York  bank  presi- 
dent. Eleven  representative  concerns  in  vari- 
ous lines,  doing  an  annual  trade  of  $109,000,000, 
showed  expenses  of  $6,925,000,  or  an  average  of 
about  61-2  per  cent,  as  follows : 


Per  Cent. 

Jobbing  hardware,  one  house 15 

Jewelry,  one  house 15 

Steam  pumps,  one  house 15 

Railroad  supplies  and  machinery,  one  house 10 


48  GIVING  JLND  GETTING   CBKDIT. 

Expense* 
Groceries  (no  liquors)  two  houses :  Per  Cent. 

One  house 6 

One  house 6| 

Groceries  (with  liquor)  one  house 8 

Dry  goods,  jobbing,  two  houses  : 

One  with  annual  business  of  $40,000,000 5£ 

"       "  "          "          "  $10,000,000 6i 

Commission  dry  goods,  one  house,  with  annual 

business  of  $10,000,000 H 

Commission  woollens,  one  house 2-J- 

Similar  statistics  taken  from  the  statements 
made  direct  to  the  same  gentleman  by  ten  leading 
houses  in  representative  lines  of  business,  show : 

Total  annual  business $12,693,000 

Total  expenses 900, 000 

Percentage  of  expenses  to  annual  business,  a 
small  fraction  over  7  per  cent,  proportioned  as 
follows : 

Per  Cent. 

Retail  dry  goods,  two  houses :  One 20 

One 16.6 

Wholesale  groceries,  two  houses ;  One  in  New  York    3. 5 

One  West 5 

Wholesale  hardware,  one  house 9 

Wholesale  clothing,  two  houses :  One 5. 7 

One  (reputed  close  and  economical) 3. 6 

Wholesale  tobacco,  two  houses :  One 2 

One 4 

Manufacturing  cigars,  one  house 4. 9 


SUGGESTIONS   AND   PRECAUTION'S.  49 

The  matter  of  personal  expenditure  is  also 
worthy  of  attention,  because  many  failures  are 
due  to  this  item.  Extravagant  living  is  even 
more  ruinous  than  light  profits,  because,  while 
the  former  is  never  relinquished  except  under 
compulsion,  the  latter  may  improve. 

Those  who  in  prosperous  and  piping  times 
have  established  stylish  social  relations  find  it 
particularly  hard  to  retrench  when  business  de- 
clines and  the  income  is  impaired.  They 
sometimes  shrink  from  making  known  the  act- 
ual condition  of  their  affairs,  even  to  their  own 
families,  and  enforcing  the  necessary  economy, 
so  they  grow  poor,  in  order  to  keep  up  the  ap- 
pearance of  being  rich. 

Some  houses  have  an  exhaustive  formula  of 
questions  prepared,  to  which  satisfactory  an- 
swers are  obtained  before  a  new  account  will  be 
opened.  The  paper  is  then  filed  away  for  future 
reference.  The  catechism  given  below  is  prac- 
tically the  one  now  in  use  by  a  successful  house 
in  New  York  city : 

Full  name? 

Locality? 

Age? 


50  GIVING  AND   GETTING   CREDIT. 

Nationality  ? 

Nature  of  business? 

Capital  in  business? 

Capital  outside  of  business? 

Volume  of  business  to  capital? 

Has  the  business  been  profitable? 

Withdrawals  for  personal  expenses? 

Expense  of  conducting  business  preceding  year? 

Nature  of  the  assets? 

Liabilities? 

Previous  dealings  with  whom? 

Who  are  the  principal  creditors? 

Agency  rating? 

References? 

Past  record  ? 

Ever  failed? 

Ever  had  a  fire? 

Married? 

Habits? 

Ability? 

Industry? 

Experience? 

Punctuality? 

Speculative  outside? 

Insurance? 

Partners,  general  and  special? 

Family  connections? 

Contingent  liabilities,  as  indorsements,  etc? 

Remarks. 

Definite  and  verified  answers  to  all  these 
queries  should  certainly  furnish  a  basis  for  posi- 
tive conclusions.  But  not  every  man  whose 
trade  is  desirable  will  permit  himself  to  be  led 


SUGGESTIONS   AND    PRECAUTIONS.  51 

solemnly  to  the  "  sweat  box"  and  put  through 
such  a  formal  inquisition. 

A  man  of  tact  can,  however,  bring  out  many 
of  these  facts,  with  clews  to  other  facts,  in  an 
easy  conversation,  and  obtain  the  rest  from  col- 
lateral sources. 

A  sensible  business  man,  opening  an  account 
with  strangers,  should  know,  and  does  know, 
that  they  must  somehow  acquire  knowledge  of 
his  responsibility.  And  with  such  a  customer, 
a  courteous  and  expectant  attitude  at  the  proper 
moment  is  often  the  only  interrogatory  needed 
to  elicit  a  voluntary  statement. 

It  is  only  leading  and  influential  houses  that 
can  carry  much  red  tape  in  these  days  of  com- 
petition. We  can  all  sit  on  the  fence  and  order 
the  mountain  to  come  to  us,  but  if  it  will  not 
come,  we  go  to  the  mountain.  It  is  easy  to 
make  all  sorts  of  rules,  but  with  the  great 
majority  of  concerns  the  rule  that  is  never 
broken  is  the  rule  of  expediency.  "I  do  not 
want  processes,  but  results,"  said  Jay  Gould. 

A  travelling  salesman  has  called  many  times 
upon  a  firm,  and  at  last  he  secures  an  order  out 
of  the  very  teeth  of  a  dozen  fierce  competitors. 


52  GIVING   AND   GETTING   CREDIT. 

He  is  instructed  to  investigate  the  standing  and 
character  of  his  customers,  but  when  he  begins 
to  propound  the  usual  questions,  the  buyer  says, 
"Oh,  I  have  no  time  to  go  into  all  that.  If  you 
are  afraid,  you  can  cancel  the  order.  I  can  get 
all  the  goods  I  want  in  a  dozen  directions." 
This  firm  is  probably  good,  and  what  is  the 
salesman  to  do?  He  will  do  the  best  he  can. 
He  will  act,  and  his  house  will  act,  upon  collat- 
eral information. 


CHAPTER  IV. 

ESTIMATING  CREDITS,   ETC. 

THE  most  searching  and  decisive  test  of  a 
man's  actual  financial  condition  is  his  balance 
sheet,  or  statement,  signed  by  himself  and  fully 
verified.  Other  information  concerning  him 
may  be  misconceived,  or  uncertain,  but  there  is 
no  mistaking  such  a  presentment  of  his  affairs. 
Nor  can  he  wriggle  away  from  his  written 
statement  as  he  might  from  his  verbal  declara- 
tions. If  it  is  garbled,  if  the  assets  are  wilfully 
placed  too  high  and  the  liabilities  too  low,  in 
order  to  obtain  credit  favors,  or  an  agency 
rating,  the  maker  braves  the  penalty  of  fraud. 

The  construction  of  a  statement,  or  the  man- 
ner in  which  it  is  made  up,  indicates  much  as 
to  the  business  methods  of  the  concern  which 
makes  it.  Some  statements  are  plain,  explicit, 
comprehensive;  others  vague,  confused,  and 

perhaps  equivocal. 

53 


54  GIVING  AND  GETTING   CREDIT. 

An  ambiguous  statement  points  at  one  of  two 
conclusions :  if  it  is  a  frank  transcript  from  the 
books  of  the  applicant  for  credit,  and  does  not 
set  forth  his  condition  clearly,  he  is  ignorant  in 
regard  to  his  own  affairs.  He  is  not  a  good 
business  man.  On  the  other  hand,  if  it  is  a 
case  of  suppressio  veri  and  suggestio  falsi,  it 
is  a  trap. 

More  than  one  instance  is  upon  record  in  re- 
cent years  where  two  members  of  an  important 
firm  have  made  simultaneous  statements  of  its 
affairs  unknown  to  each  other,  which  varied 
greatly  in  essential  respects. 

The  liabilities  and  receivables  of  a  house  are 
constantly  varying  quantities,  and  so  also  is  the 
relative  proportion  of  cash;  a  statement  made 
at  one  season  should  therefore  be  considered 
with  relation  to  the  probable  position  at  another. 
A  trader  will,  for  example,  appear  to  be  upon  a 
much  stronger  and  more  conservative  footing 
after  he  has  made  his  collections  and  paid  his 
debts  of  the  past  season,  than  when,  a  few 
months  later,  he  is  extended  between  the  pay- 
ables  and  receivables  of  the  next  active  season. 
Large  outstandings,  in  proportion  to  the  amount 


ESTIMATING   CREDITS,  ETC.  55 

of  business,  imply  either  too  liberal  credits,  or 
slack  collections.  And  it  is  generally  regarded 
as  against  the  canons  of  credit  for  a  merchant 
to  permit  any  concern  to  owe  him  more  than 
twenty  or  twenty-five  per  cent  of  its  capital. 

In  analyzing  a  statement,  special  heed  should 
be  given  to  the  capital,  volume  of  business,  and 
the  average  time  of  credit  given,  taken  in  rela- 
tion to  each  other.  The  larger  the  amount  of 
business,  and  the  longer  the  credit  given,  the 
heavier  may  naturally  be  the  liabilities  of  the 
average  concern,  while,  of  course,  a  small  busi- 
ness, with  moderate  capital,  should  show  but 
small  liabilities. 

Two  values  may  be  estimated  upon  every 
man's  estate — one  before,  and  one  after  failure; 
and  the  effects  of  the  contingency  should  be 
kept  in  view.  Assets  shrink,  but  liabilities 
never.  Traders'  merchandise,  and  accounts  re- 
ceivable, are  said  to  net,  on  the  average,  cer- 
tainly no  more  than  sixty  or  sixty-five  per  cent 
under  the  process  of  winding  up  for  the  benefit 
of  creditors ;  and  the  manufacturer's  machinery 
and  plant  but  twenty  'or  twenty-five  per  cent. 
In  fact,  machinery,  in  such  cases,  is  often  sold 


56  GIVING  AND  GETTING   CKEDIT. 

for  old  iron.  If,  therefore,  the  assets  of  an  aver- 
age concern  do  not  considerably  exceed  its 
liabilities,  it  is  really  insolvent  if  compelled  to 
liquidate;  although,  if  circumstances  favor,  it 
may  continue,  meeting  its  engagements,  and 
gaining  financial  strength. 

As  a  rule,  merchandise  is  a  quick  asset  at 
current  value,  in  proportion  to  its  nearness  to 
raw  material.  That  is  to  say,  articles  like  cot- 
ton, wool,  leather,  iron,  rubber,  etc.,  can  gener- 
ally be  turned  into  cash  with  less  delay  and  loss 
than  their  manufactured  products,  such  as  cloth, 
garments,  shoes,  hats,  hardware,  etc.  In  mod- 
ern times,  the  more  labor  expended  upon  a  raw 
product,  the  further  it  is  removed,  as  a  rule, 
from  a  general  into  a  more  special  and  narrow 
field  of  demand.1 

There  is  too  often  a  vast  disparity  between 
"real"  and  "nominal"  assets.  The  best  ma- 
chinery will  not  wear  forever,  and  experience 


1  Growers'  products,  in  fact,  sell  for  cash  all  over  the 
world,  except  in  New  Zealand,  where,  according  to  our 
consular  reports,  "articles  of  luxury,"  strangely  enough, 
command  cash  returns  more  readily  than  do  the  neces- 
saries of  life. 


ESTIMATING   CREDITS,  ETC.  57 

has  shown  that  its  worth  is  soon  impaired,  more 
or  less,  by  new  inventions.  Soiled  and  unfash- 
ionable stock  accumulates ;  goods  held  over  de- 
preciate ;  doubtful  and  worthless  book-accounts 
multiply.  Surely  the  statement  of  an  upright 
man  of  business  should  reflect  these  facts.  If 
he  stands  upon  absolute  verities,  he  will  reso- 
lutely charge  off  such  shrinkages,  and  place  the 
value  of  his  assets  upon  a  real  basis. 

Where  real  estate  figures  in  a  statement,  the 
mortgages  and  liens  should  properly  be  scheduled 
as  liabilities,  because  they  are  a  claim  upon  the 
general  assets  if  the  real  estate  does  not  satisfy 
them.  In  many  statements  the  equity  is  merely 
shown  as  an  asset. 

Real  estate  is  slow  to  be  realized  upon,  and 
seldom  brings  schedule  prices  at  forced  sale. 
It  is  very  likely  to  be  blanketed  with  the  heavi- 
est possible  mortgage  before  it  reaches  the  as- 
signee, and,  under  such  circumstances,  the  value 
of  the  equity  remaining  is  problematical. 

It  is  complained  that  many  houses,  in  irre- 
trievable difficulties,  have  a  propensity  to  hold 
on  too  long.  Ethics  would  seem  to  require  that, 
when  a  concern  knows  itself  to  be  hopelessly  in- 


58  GIVING   AND   GETTING   CKEDIT. 

solvent,  it  should  quit  at  once,  and  divide  up, 
rather  than  keep  on  to  multiply  debts,  filch  a 
living,  and  end  up  with  a  lot  of  doubtful  or  in- 
iquitous preferences.  It  was  said  of  one  such 
firm  that,  at  last,  its  affairs  were  easily  wound 
up,  for  its  only  remaining  asset  was  a  silver 
watch. 

A  statement  sometimes  shows  a  respectable 
capital  which  is  nominally  at  the  risk  of  the 
business,  but  which  is  really  borrowed  from 
relatives,  with  the  secret  understanding  that 
they  shall  be  preferred  in  case  of  disaster. 

The  balance  carried  in  bank  is  good  construc- 
tive evidence  of  financial  strength,  when  it  is 
not  forced,  like  blossoms  in  winter,  and  bears 
due  relation  to  other  circumstances.  But  insol- 
vency may  lurk  behind  a  big  bank  account,  and 
knaves  have  too  often  flourished  it  as  a  decoy, 
for  prudent  business  men  to  accept  it  in  these 
days  as  a  voucher  of  solvency  and  decisive 
gauge  for  credit. 

We  are  not  prone  to  do  much  exhaustive 
thinking,  or  be  painfuUy  anxious  over  the  risks 
which  others  may  assume;  although  it  may  be 
said  that,  as  a  rule,  American  business  men 


ESTIMATING   CREDITS,  ETC.  59 

cheerfully  reflect  their  honest  opinions,  when 
reference  is  made  to  them  in  regard  to  the  stand- 
ing of  an  applicant  for  credit.  And  if  two  or 
three  houses,  known  to  be  respectable  and  con- 
servative, have  acquired  sufficient  confidence  in 
a  man  to  give  him  a  line  of  credit,  and  approve 
him  to  others,  it  is  a  fair  presumption  that  he 
is,  in  some  degree,  worthy  and  responsible. 

But  such  evidence  is  not  always  conclusive. 
A  smart  trader  will  see  to  it  that  those  to  whom 
he  refers  are  qualified  to  speak  favorably  of,  at 
least,  their  own  specific  experience  with  him. 
And  it  sometimes  happens  that  houses  thus  re- 
ferred to  have  been  influenced  to  extend  credit 
to  the  party  in  question  solely  by  the  example 
and  reported  experience  of  other  houses,  and 
that  none  have  knowledge  of  his  actual  condi- 
tion beyond  that  derived  from  rumor,  or  their 
own  personal  and  limited  dealings  with  him. 

Again,  it  is  conceivable  that  a  trader  may  be 
heavily  indebted  to  a  house  which  knows  him 
to  be  honest,  but  extended,  and  struggling  along 
with  an  impaired,  or  limited  capital ;  to  weaken 
his  credit  would  be  fatal.  Under  such  circum- 
stance, a  not  over-scrupulous  creditor  might  con- 


60  GIVING    AND   GETTING   CREDIT. 

ceal  tne  facts,  and  even  help  to  fatten  his 
debtor's  assets  against  his  probable  bankuptcy. 
On  the  other  hand,  if  he  is  a  good  and  desirable 
customer,  business  jealousies  and  rivalries 
might  prompt  an  artfully  dubious  report  of 
him.  Such  cases  especially  manifest  the  value 
of  the  Mercantile  Agencies,  because,  being 
wholly  disinterested,  their  reports  are  made 
without  prejudice  or  partiality. 

Nor  are  instances  lacking  where  the  confident 
statements  of  a  leading  house  have  procured 
credit  for  a  little-known  dealer,  whose  subse- 
quent failure  exposed  the  fact  that  the  concern 
which  stood  as  his  reference  held  judgment 
notes  against  him  at  the  time  they  recommended 
him  for  credit;  or,  perhaps,  a  chattel  mortgage 
upon  his  property,  equivalent  to  a  judgment 
execution  and  levy.  It  has  been  well  said,  that 
"  the  integrity  of  the  many  renders  possible  the 
fraud  of  the  few." 

The  remark  is  often  made,  that  concerns  which 
cannot  be  trusted  to  "  stand  without  hitching" 
always  manage  to  obtain  credit  in  some  direc- 
tion. The  bait  of  a  big  profit  is  sure  to  allure 
some  confiding  dealer,  and  he  who  is  regard- 


ESTIMATING   CREDITS,  ETC.  61 

less  of  how  many  cents  he  will,  by  and  by,  pay 
on  the  dollar  can  afford  to  be  very  generous  in 
the  small  matter  of  prices. 

Men  of  this  stamp  measure  their  strength  by 
another's  weakness,  and  are  quick  to  see  a  vul- 
nerable point.  They  bank  largely  on  eagerness 
to  sell.  If  the  most  desirable  and  salable  goods 
"fly  too  high"  for  their  pretensions,  they  be- 
come interested  in  the  surplus  stock  of  the  last 
season,  slightly  unfashionable  or  shop- worn 
goods,  "job  lots,"  anything  which,  while  hav- 
ing good  value,  it  is  especially  desirable  to  be 
rid  of.  And  they  often  inspire  a  degree  of  confi- 
dence in  their  intention  to  pay  by  artfully  hag- 
gling over  prices.  It  has  been  said,  that  the 
business  of  the  world  would  be  transacted  by 
men  possessing  real  means,  if  it  were  not  antici- 
pated by  men  without  means. 

The  desire  to  sell  goods  is  so  general  that  the 
trade  of  responsible  concerns  is  almost  daily 
solicited,  wherever  in  the  country  they  may  be 
located,  and  they  will  probably  be  offered  all  the 
credit  they  are  entitled  to,  if  they  make  known 
their  condition.  They  need  not  beg  for  it.  The 
receipt  of  an  unsolicited  order  from  a  stranger 

0 


62  GIVING   AND   GETTING    CREDIT. 

for  the  common  sorts  of  merchandise  is  un- 
usual. If  such  order  comes  from  a  locality  not 
naturally  tributary,  it  should  be  viewed  with 
increased  caution,  and  only  accepted  when  good 
reasons  are  made  apparent  for  wandering  away 
from  customary  and  more  convenient  sources  of 
supply. 

Yet  the  margin  of  profit  on  some  articles  is 
such  that  the  vender  can  lose  every  other  bill  and 
still  grow  rich.  Sheet  music,  etchings,  prints, 
chromos,  and  other  things,  the  chief  cost  of 
which  lies  in  the  preparation  of  plates,  or  facili- 
ties for  their  multiplication  at  a  trifling  expense, 
are  examples.  So  also  are  proprietary  medicines 
and  similar  articles.  It  is  evident  that  dealers 
in  such  goods  can  afford  to  take  greater  risks 
than  those  who  sell  metals,  sheetings,  or  any 
kind  of  staple  commodities.  In  fact,  some 
dealers  in  the  former  say  they  never  refuse  an 
order,  if  they  can  learn  that  the  party  ordering 
is  actually  in  trade,  and  is  not  a  fraud. 

The  type  of  buyers  who  inspire  most  confi- 
dence is  frank,  but  not  garrulous.  His  claims 
to  credit  are  stated  clearly,  candidly,  confident- 
ly, but  in  few  words.  He  meets  no  doubt  until 


ESTIMATING   CREDITS,  ETC.  63 

the  doubt  arises.  He  identifies  goods  for  his 
own  conclusions,  and  buys,  or  rejects,  upon  his 
own  judgment,  and  his  "  no"  stands  for  a  fact 
against  all  the  arts  of  persuasion.  He  has  a 
keen  eye  to  price,  but  an  equally  clear  and  in- 
telligent vision  for  quality  and  style,  and  he 
catches  opportunity  on  the  wing.  The  bear- 
ing of  such  a  man  proclaims  that  he  is  a  living 
force,  and  implies  that  he  at  least  deserves  con- 
sideration. 

If,  in  times  of  financial  stringency,  it  became 
necessary  for  such  a  merchant  to  press  his  claims 
for  discounts  or  favors  upon  his  bank,  he  will 
set  forth  his  needs  frankly,  and  urge  the  equities 
of  his  case  with  dignity.  He  who  cringes,  and 
pleads  for  financial  favors,  or  for  credit,  creates 
an  unfavorable  impression.  It  was  Stephen 
Girard  who  said,  to  one  that  shed  tears  when 
asking  for  a  loan :  "  The  man  who  cries  when 
he  comes  to  borrow  will  cry  when  he  is  asked  to 
pay." 

The  customer  who  can  be  overloaded  with 
goods  by  a  pushing  salesman  is  a  very  question- 
able risk.  If  he  is  without  experience,  it  is  prob- 
able that,  later  on,  he  will  acquire  it  at  the  ex- 


64  GIVING   AND  GETTING   CREDIT. 

pense  of  his  creditors.  If  he  is  naturally  credu- 
lous, irresolute,  and  infirm  of  purposes,  he  is  sure 
to  be  a  prey  upon  all  sides,  until  he  goes  to  the 
wall. 

Wise  old  Dr.  Samuel  Johnson  made,  many 
years  ago,  a  practical  commentary  on  the  mod- 
ern practice  of  forcing  goods  upon  a  reluctant 
customer.  In  urging  the  abolition  of  imprison- 
ment for  debt,  he  declared  that  failure  to  pay 
was  not  always  the  crime  of  the  debtor  alone, 
because  the  creditor  shares  the  act,  and  often 
more  than  shares  the  guilt  of  improper  trust. 
He  invites,  or  urges,  to  the  contraction  of  a 
debt,  in  the  hope  of  advantage  to  himself;  and 
proportions  his  profit  to  his  own  opinion  of  the 
risk.  And  therefore,  if  the  debtor  is  unable  to 
pay  through  misfortune,  he  should  not  be  pun- 
ished by  the  creditor,  because  both  concurred 
in  the  contract. 

"  Dating,"  means  that  goods  sold,  say  in  Janu- 
ary, are  to  be  delivered  at  once,  but  not  invoiced 
until  March  or  April,  when  the  specified  term 
of  credit  will  begin.  Purchasers  insist  that 
they  are  justified  in  asking  such  credit  conces- 
sions, because  of  the  exigencies  of  the  season, 


ESTIMATING   OEEDITS,  ETC.  65 

etc.,  and  dating  has,  in  some  lines,  become  a 
prevalent  custom.  A  large  house  in  New  York 
states  that  "dating"  and  "time  stealing,"  or  de- 
lay in  payments  due,  cost  it,  on  an  average, 
more  than  its  losses  from  bad  debts,  and  many 
other  houses  estimate  their  loss  of  interest  from 
this  source  as  a  serious  item. 

Some  dealers  think,  or  pretend  to  think,  that 
if  they  pay  interest  on  past-due  bills  and  ac- 
counts, the  creditor  should  be  well  satisfied,  and 
make  no  complaint.  But  not  so :  the  merchant 
is  not  a  banker,  and  six  per  cent  interest  does 
not  reimburse  him.  He  needs  his  money  to  pay 
his  own  bills,  and  he  needs  it  when  it  is  due. 
Not  to  receive  it  is  disappointing,  and  in  viola- 
tion of  business  equities.  He  is  held  strictly 
to  the  fulfilment  of  his  own  obligations,  and  he 
has  the  right  to  expect,  and  demand,  that  others 
shall  keep  their  promise  with  him.1 


1  Suppose  a  trader  owes  half  a  dozen  concerns,  on  ac- 
count, $10,000,  payable  about  January  1.  He  has  in 
hand  $5,000,  November  1,  but  sees  no  way  to  get  the 
other  $5,000  until  March  1.  It  is  obvious,  that  if  he 
pays  half  a  book- debt  two  months  before  it  is  due,  and 
the  balance  two  months  after  it  is  due,  he  averages  the 


66  GIVING   AND   GETTING   CREDIT. 

No  merchant  can  reasonably  expect  to  flour- 
ish long,  in  these  days  of  driving  competition, 
if  he  pays  higher  prices  for  his  goods  than  his 
neighbor.  But,  as  a  rule,  he  is  charged  more 
for  them,  if  he  is  careless  and  tardy  in  his  pay- 
ments, or  if,  from  any  cause,  his  credit  is  im- 
paired or  doubtful. 

Lax  business  methods,  or  limited  resources, 
multiplied  into  high  prices  for  goods,  sooner  or 
later,  give  failure  as  a  product.  The  old  Ger- 
man proverb  applies  to  mercantile  affairs  with 
increasing  force :  "  Lange  Krankheit  ist  sicker- 
todt."  ("Long  sickness  is  sure  death.)  And 
there  are  some  who  insist  that,  in  this  era 
of  sharp  competition,  if  a  merchant  cannot  make 
his  payments  so  as  to  secure  cash  discounts,  the 
sooner  he  winds  up,  the  better  it  will  be  for  all 
concerned. 

A  Jewish  merchant  in  New  York,  who  for 

payments.  He  should,  therefore,  promptly  apply  his 
$5, 000  to  his  debts,  pro  rata.  This  may  not  be  altogether 
as  satisfactory  to  the  merchant  as  regular  payments  on 
time,  but  few  will  complain,  and  it  is  better  for  all 
parties  that  the  debtor  should  not  wait  until  the  last 
moment  to  pay  his  $5, 000,  and  then  plead  for  extended 
time  on  the  remainder,  with,  or  without,  added  interest. 


ESTIMATING   CEEDITS,  ETC.  6t 

more  than  forty  years  has  maintained  his  credit, 
and  grown  rich  in  fair  dealing,  gives  the  follow- 
ing leaf  from  his  experience:  On  a  pleasure 
trip  to  the  West,  a  few  years  ago,  he  read  in 
a  local  paper  that  the  head  of  a  firm,  which  had 
a  large  credit  account  with  him,  had  become  in- 
volved with  a  woman  in  his  employ,  and  that 
his  wife  had  obtained  a  divorce  on  the  usual 
statutory  grounds.  Without  delay,  he  instructed 
his  firm  to  close  the  account  as  soon  as  possible, 
and  a  few  months  later  the  Western  firm  failed 
disastrously. 

A  prominent  merchant  in  Philadelphia  re- 
lates the  following :  "  One  of  the  best  men  whom 
I  ever  knew,  and  who  was  in  business  for  him- 
self, called  upon  me  one  day  to  get  me  to  ac- 
company him  to  the  noon-day  prayer-meeting, 
at  which  he  was  a  regular  attendant.  In 
answer  to  his  solicitation,  I  said:  'No,  sir; 
twelve  o'clock  to  one  o'clock  is  not  my  time  to 
pray;  it  is  my  time  to  watch.'  A  few  years 
afterward,  he  was  doing  business  as  an  'agent.' 
He  had  overlooked  the  divine  injunction,  'Be 
diligent  in  business. ' " 


CHAPTER  V. 

POINTS  ON   GIVING   CREDIT. 

IT  is  worth  while  to  ascertain  the  nature  of 
the  patronage  upon  which  a  credit  customer  has 
to  depend — whether  upon  farming,  manufac- 
turing, mining,  or  mixed  pursuits;  and  what 
promise  of  success  there  is  in  the  conditions 
which  surround  him.  Perhaps  he  is  attempting 
to  conduct  a  first-class  business  in  a  poor  neigh- 
borhood, or  a  business  for  poor  people  in  a  first- 
class  neighborhood. 

Agriculture  is  the  basis  of  the  national  pros- 
perity, and  a  farming  community  has  always 
been  considered  stable  and  reliable.  Yet,  sec- 
tions are  subject  to  the  possibility  of  drought, 
floods,  or  frosts,  in  unfavorable  seasons,  which 
destroy  the  crops.  In  such  cases,  the  store- 
keeper may  be  unable  to  collect  from  his  im- 
poverished patrons,  and  become  embarrassed, 
unless  his  resources  are  sufficient  to  tide  him 

over  to  another  harvest. 
68 


POINTS   ON   GIVING   CREDIT.  69 

Agricultural  conditions  have  changed  essen- 
tially during  the  present  generation.  Farm- 
ing is  not  as  profitable  as  in  former  times,  and, 
in  some  parts  of  the  country,  farm  lands  have 
declined  in  value,  while  the  acreage  under  cul- 
tivation has  also  decreased,  which  is  due  to  the 
fact  that  the  lands  could  no  longer  be  profitably 
cultivated.  * 

1  The  aggregate  extent  of  this  decrease,  from  1880  to 
1890,  in  a  number  of  the  older  States,  is  shown  by  the 
Eleventh  Census  to  be  equal  to  the  combined  total  area 
of  several  of  the  New  England  States.  This  census  also 
shows  that,  in  1890,  about  2,500,000,  or  rather  more  than 
half  the  farms,  were  under  mortgage,  the  rate  of  inter- 
est paid  being  from  5.57  to  12.61  per  cent.  About  75 
per  cent  of  the  indebtedness  in  the  newer  States  ap- 
pears to  have  been  incurred  for  purchase -money,  or  for 
making  improvements  on  the  property. 

More  recent  statistics  indicate  that  the  farms  of  the 
single  State  of  Ohio,  for  instance,  depreciated  in  value 
more  than  $50,000,000  during  the  year  1894,  while  the 
indebtedness  of  their  owners  increased  about  $8,000,- 
000.  There  were  formerly  but  few  renting  farmers  in 
the  country,  while  now  there  are  many,  and  they  are 
increasing  in  number.  In  1890,  the  percentage  of  the 
whole  population  inhabiting  farms  was  41  per  cent ;  in 
1894,  39  per  cent.  Since  1890,  the  rural  population  has 
increased  but  one-sixth  as  fast  as  the  urban  ;  a  porten- 
tous change  to  the  wage-earner.  In  forty  years  rural  or 
agricultural  wealth  has  only  quadrupled,  while  urban 
has  multiplied  sixteen-fold. 


70  GIVING   AND   GETTING    CREDIT. 

Hitherto,  the  natural  fertility  of  our  vir- 
gin soil,  and  the  superiority  of  our  farming  im- 
plements, have  enabled  us  to  compete  with  other 
producing  nations  in  the  world's  markets,  even 
at  a  prodigiously  greater  cost  for  labor.1 

But  foreign  competitors  multiply,  and  adopt 
our  labor-saving  inventions,  and  farmers'  pros- 
pects grow  less  hopeful.  In  addition  to  other 
prolific  sources  of  supply,  Argentina  now  makes 
claim  to  a  vast  area  adapted  to  the  growth  of 
cereals,  and  her  surplus  of  wheat  last  year  was 
upward  of  a  million  and  a  half  tons. 

Prices  of  growers'  products  were  never  so  low 
as  of  late;  and  it  is  probable,  that  if  anything 
like  "five-cent  cotton,  and  fifty-cent  wheat,"  are 
henceforth  to  be  the  rule,  great  numbers  of  our 

1  The  Kansas  State  Board  of  Agriculture  stated,  two  or 
three  years  ago,  that  the  average  cost  of  raising  wheat 
in  that  region  is  $3. 86  per  acre,  as  against  $5.07  in  India, 
notwithstanding  that  the  half-starved  Ryot  of  the  Gan- 
getic  plains  gets  but  five  or  six  cents  a  day  for  his  work. 
This  is  equivalent  to  saying  that  the  cost  of  raising  a 
bushel  of  wheat  in  India  is  53  cents,  as  against  30  cents 
in  Minnesota,  the  Dakotas,  or  Kansas. 

Professor  Mulhall  said  recently  :  "  An  ordinary  farm- 
hand in  the  United  States  raises  as  much  grain  as  three 
in  England,  four  in  France,  five  in  Germany,  or  six 
in  Austria. " 


POINTS  ON   GIVING   CREDIT.  71 

farmers  will  abandon  agriculture  for  more  re- 
munerative pursuits,  and  that  still  more  farm 
lands  will  lapse  into  wilderness.1 

Manufacturing  and  mining  communities,  be- 
sides such  vicissitudes  as  may  arise  from  the 
general  laws  of  supply  and  demand,  are  sub- 
jected to  the  possibility  of  labor  troubles,  which 
may  impair  their  prosperity.  It  follows,  of 
course,  that  when,  in  such  a  neighborhood,  the 
number  of  wage-earners  is  diminished,  and  earn- 
ings curtailed,  the  average  resident  trader  must 
share  in  the  general  distress. 

1  There  has  been  a  significant  decline  inthepopulation 
and  prosperity  of  small  towns  during  the  last  ten  or 
fifteen  years.  It  is  asserted  that  the  States  of  Ohio, 
Indiana,  Illinois,  and  Iowa  contain  6, 291  townships,  of 
which  one-half,  or,  to  be  exact,  3, 144,  declined  in  popu- 
lation between  1880  and  1890. 

A  South  American  correspondent  of  the  New  York 
Herald  wrote  to  that  journal,  in  October  of  last  year 
(1894),  as  follows: 

"If  Argentine  agriculturists  desire  to  extend  their 
facilities  for  wheat-growing,  they  can  do  so  to  nearly 
the  same  area,  if  not  more,  than  in  the  United  States. 
Land  that  will  serve  for  wheat-culture  exists  in  nearly 
all  of  the  middle  and  southern  provinces  of  the  re- 
public. There  are  at  least  20,000  leagues  of  land,  in  the 
hands  of  the  general  government,  suitable  for  cereals, 
while  the  area  owned  by  private  individuals  is  esti- 
mated to  be  at  least  100,000  leagues." 


72  GIVING   AND   GETTING   CKEDIT. 

The  power  of  production  is  increasing  in  a 
much  higher  degree  than  the  increase  in  the 
number  of  workmen  employed,  and  it  is  prob- 
able that  we  have  only  seen  the  beginning  of 
the  complications  which  will  accompany  further 
industrial  development.1 

But  while  these  facts  are  significant  of  star- 
tling possibilities  for  the  more  or  less  remote 
future,  it  is  expected  that  they  will  affect  exist- 
ing conditions  so  gradually  as  to  have  little 
immediate  practical  importance  from  the  view- 
point of  the  ordinary  mercantile  creditor.2 

1  In  the  12th  Annual  Report  of  the  Commissioner  of 
Labor  Statistics  of  the  State  of  New  York,  made  in 
February,   1895,   it  is  asserted   that  "recent  improve- 
ments in   labor-saving  machinery,  especially  in    the 
printing  trade,  have  caused  a  decrease  in  the  number 
of  employees  from  twenty  per  cent  to  sixty- six  and 
two- thirds  per  cent ;  in  other  branches  of  industry,  the 
decrease  will  average  eighteen  per  cent,  and  in  some 
instances  it  runs  as  high  as  sixty  per  cent."    These 
figures  are  made  up  from  returns  furnished  by  labor  or- 
ganizations in  the  State. 

2  After  a  degree  of  density  (of  population)  has  been 
attained,   sufficient  to  allow  the  principal  benefits  of 
combination  of  labor,  all  further  increase  tends  in  itself 
to  mischief,  so  far  as  regards  the  average  condition  of 
the  people.    (J.  S.  Mill.) 

It  is  not  the  poor,  but  those  with  vested  interests, who 
now  encourage  immigration. 


POINTS  OK   GIVING   CREDIT.  73 

There  is  usually  more  cash  afloat  in  a  manu- 
facturing town,  and  goods  are  sold  more  nearly 
upon  a  cash  basis,  than  in  a  purely  farming 
neighborhood,  and  collection  facilities  are  better 
in  such  localities.  Traders  should,  therefore,  be 
expected  to  collect  more  closely,  and  to  pay  with 
promptness,  and  they  may  perhaps  require  less 
capital  to  conduct  their  business  successfully  in 
such  towns. 

A  mixed-pursuit  locality  is  less  liable  to  ex- 
treme fluctuations  of  prosperity  and  adversity 
than  one  which  is  "all  cotton,"  "all  wheat,"  or 
"all  corn,"  or  its  equivalent — a  town  chiefly  de- 
pendent on  a  single  industry.  Paterson,  with 
its  ninety  or  more  silk  factories,  and  twenty 
thousand  operatives,  is  an  example  of  such  a 
place ;  so  also  is  Fall  River  with  its  cotton  fac- 
tories, or  Trenton  with  its  numerous  potteries. 
These  facts  will  suggest  to  careful  merchants 
the  precaution  of  fire  insurance  companies, 
which  refuse  to  concentrate  risks. 

"  Over-production"  is  held  accountable  for  a 
full  share  of  the  jarring  competition,  distress, 
and  failure  among  manufacturers  and  merchants 
in  recent  years.  And,  without  doubt,  there  is 


74  GIVING   AND   GETTING    CREDIT. 

such  a  thing  as  over-production,  relative  to  de- 
mand ;  but  in  no  way  can  it  be  held  in  check 
save  by  its  own  penalties.  Men's  desires  are 
boundless,  and  we  shall  more  wisely  try  to  stim- 
ulate the  world's  consumption  than  attempt 
arbitrarily  to  control  production.  To  accom- 
plish the  former  is  the  problem  and  quest  of  the 
age.1 

Natural  law  controls  the  development  of 
human  affairs  as  surely  as  it  regulates  the  sea- 
sons ;  and  it  is  a  suggestive  fact  that,  under  such 
law,  the  wants  of  men  increase  as  they  become 
civilized  and  enlightened.  A  demand  arises  for 
the  products  of  more  advanced  nations,  and  the 
vitalizing  energies  of  capital  and  credit  multiply 
with  an  expanding  market. 

1  Two  men  came  into  a  Broadway  cable  car.  The 
trousers  of  one  were  quite  worn,  and  very  ragged  about 
the  knees,  while  the  lamentably  tattered  condition  of 
the  other  man's  trousers  was  only  concealed  when  he 
sat  down.  It  would  be  interesting  to  develop  the 
opinions  of  these  men  in  regard  to  the  over-production 
of  trousers,  for  instance. 

It  was  estimated,  some  years  ago,  that  cloth  was  con- 
verted into  clothing  at  the  ratio  of  three  parts  materials 
and  two  parts  manufacturing  and  distributing,  and 
that  the  average  annual  consumption  of  clothing  was 
about  $25  per  head. 


POINTS  ON  GIVING   CEEDIT.  75 

The  temperate  zone  was  first  brought  under 
subjection,  in  virtue  of  its  more  favorable  cli- 
matic conditions  and  fewer  physical  impedi- 
ments. The  seeds  of  modern  progress  were  not 
earlier  planted  in  Arctic  regions,  because  of  the 
cold,  nor  in  the  Tropics,  because  of  the  heat.  In 
torrid  countries  agriculture  is  hindered  by  dense 
forests ;  cleared  land  springs  back  into  a  jungle ; 
harvests  are  destroyed  by  myriads  of  insects; 
the  rivers  are  too  wide  to  bridge;  the  heat 
enervates. 

But  now  that  civilization  has  subdued  and 
appropriated  the  gentler  zone — now  that  men 
have  equipped  themselves  with  labor-saving 
implements,  and  harnessed  steam  and  electricity, 
enterprise  is  prepared  to  cope  with  the  forces 
of  nature  in  any  part  of  the  world,  and  it  would 
seem  that  things  are  ripe  for  a  general  crusade 
of  development. 

Medieval  Mexico  lies  upon  our  borders.  The 
great  natural  resources  of  the  African  continent 
and  also  of  South  America  invite  attention, 
and  the  surprising  result  of  the  war  between 
China  and  Japan  is  significant  of  tremendous 
possibilities.  Newly  awakened  Russian  enter- 


76  GIVING  AND   GETTING   CKEDIT. 

prise  is  already  opening  up  vast  regions  with 
incalculable  resources,  through  the  near  com- 
pletion of  the  trans-Asiatic  railroad  across 
Siberia  to  the  Pacific  Ocean. 

For  many  reasons,  it  is  easy  to  believe  that  an 
evolutionary,  economic  movement  may  at  any 
time  arise,  which,  while  largely  absorbing  the 
surplus  capital,  will  also  give  wider  scope  to  the 
surplus  energies  of  the  dominant  races.  One 
effect  of  such  a  movement  might  be  to  lessen 
the  evils  of  so-called  over-production,  by  extend- 
ing the  markets  of  the  world,  and  stimulating 
consumption  of  the  products  of  civilization 
among  millions  who  are  ignorant  of  them  now. 

But  it  is  also  possible  that,  when  once  the 
teeming,  imitative  races  of  the  East  know  and 
prize  these  same  manufactured  products,  they 
themselves  will  soon  learn  to  produce  and  re- 
turn them  upon  the  world  in  an  ever-swelling 
tide. 

The  current  of  affairs  presents  a  different  as- 
pect from  different  posts  of  observation,  and 
there  is  usually  a  certain  vantage-ground  of 
vision  from  which  relations  and  consequences 
stand  out  most  clearly ;  like  that  famous  picture 


POINTS  ON  GIVING   CREDIT.  77 

in  Europe,  which  shows  neither  form  nor  design 
but  from  one  single  standpoint.  Some  men  and 
things  require  to  be  seen  near  to  be  well  judged 
of;  others  are  better  observed  at  a  distance. 
Lookers-on  at  a  game  of  chess  often  see  broader 
combinations  than  the  players  who  are  absorbed 
in  making  the  moves.  There  are  men,  with  "  no 
admission  except  on  business"  written  on  their 
foreheads,  who  are  so  occupied  with  petty  de- 
tails as  to  lose  sight  of  the  trend  of  their  affairs. 
They  are  like  a  man  in  a  boat,  who  rows  hard 
and  thinks  he  is  getting  on,  while  the  man  on 
shore  can  see  that  the  tide  sweeps  him  steadily 
backward. 

Take  an  illustration  from  the  wall-paper 
trade.  A  few  years  ago,  medium  grades  of  this 
article  sold  at  three  times  their  present  prices. 
Dealers  who  bought  yearly,  say  $3,000  worth, 
sold,  and  perhaps  hung  it  upon  the  wall,  at  a 
hundred  per  cent  advance  upon  cost,  and  con- 
tinued to  do  so  as  the  price  declined.  They 
had  grown  accustomed  to  this  rate  of  profit.  It 
had  been  satisfactory,  and  they  saw  no  reason 
for  alarm  until,  under  some  stress  to  meet  obli- 
gations, they  realized,  perhaps  for  the  first 
6 


78  GIVING   AND  GETTING  CKEDIT. 

time,  that  a  hundred  per  cent  yearly  profit  on 
$1,000  worth  of  goods  was  a  different  thing  from 
the  same  ratio  of  profit  on  $3,000  worth.  The 
store  was  as  full  of  goods  as  ever,  but  they  had 
only  one-third  of  the  former  value,  arid  ex- 
penses had  diminished  but  little.  The  condi- 
tion of  the  business  had  changed  almost  insen- 
sibly, and  the  result  has  been  the  failure  of 
many  small  dealers,  and  some  manufacturers 
and  jobbers.1 

It  inspires  confidence  in  the  credit  of  a  mer- 
chant, if  he  is  known  to  regard  business,  not 
merely  as  a  series  of  transactions,  but  as  a 
matter  of  principles  and  methods.  These  are  to 


1  A  Broadway  merchant  of  judgment  and  experience 
says  he  "  sometimes  recommends  an  easy-going  customer 
to  compute  carefully  the  cost  of  transacting  his  busi- 
ness each  day,  each  week,  and  each  month ;  including, 
of  course,  all  expenses,  such  as  rent,  clerk  hire,  light, 
fuel,  etc.  Add  personal  expenses,  and  place  the  totals 
on  a  card  to  be  kept  in  sight,  or  within  reach.  Keep 
the  sum  of  sales  and  profits  day  by  day,  and  if  expenses 
exceed  profits  in  any  month  retrench  in  some  direction. " 
The  same  gentleman  furnishes  another  piece  of  good 
advice  for  the  trader.  He  says :  "  To  hold  your  trade 
through  hard  times,  keep  up  your  assortment ;  don't  let 
it  run  down.  Buy  little  and  often.  Keep  everything 
in  sight,  and  nothing  under  the  counter. " 


POINTS   ON   GIVING   CREDIT.  79 

him  what  a  compass  is  to  the  seaman,  or  a  con- 
stitution to  the  State.  They  give  character  and 
stability  to  his  dealings,  and  become  a  sort  of 
mental  machinery,  which  balances  the  judgment, 
and  simplifies  the  solution  of  difficult  questions. 
Keal  business  is  neither  a  game  of  cunning  nor 
a  dodging  from  one  expedient  to  another,  and  its 
vision  extends  beyond  the  next  dollar. 

Give  two  of  the  commoner  sorts  of  men  equal 
facilities,  and  one  will  fail  while  the  other  grows 
rich.  One  is  a  good  credit  risk,  and  the  other 
is  not.  Upon  what  different  meat  do  they 
feed?  Surely  they  must  differ  in  essential  char- 
acteristics; in  judgment,  prudence,  honesty, 
thrift,  energy,  economy,  tact,  diligence,  etc. 
Some  men  are  like  horses  trained  for  speed 
rather  than  endurance.  Your  fussy  man  is 
apt  to  be  narrow,  and  to  give  his  affairs  much 
attention,  and  little  thought.  He  has  more  zeal 
than  good  sense.  He  loses  much  labor  for 
lack  of  judgment  to  direct  it. 

The  amiable,  yielding  man,  who  cannot  say 
"  no,"  is  often  more  applauded  as  a  horn  of  plenty 
by  his  customers  than  by  his  creditors,  while  the 
resolute,  pugnacious  man  may  lack  tact,  and  re- 


80  GIVING  AND  GETTING   CREDIT. 

pel  or  drive  away  business.  One  may  have 
energy  enough  in  his  play,  or  at  the  call  of  pas- 
sion, and  yet  lack  the  power  of  persevering  work. 
"Some  men  would  fail  in  Eldorado,"  said  an 
American  financier.  As  before  stated,  those 
who  do  not  succeed  can  generally  find  in  them- 
selves the  cause  of  their  failure. 

Most  people  believe  more  or  less  in  "luck," 
and  perhaps  there  is  something  in  it,  but  the 
luck  of  your  successful  merchant  is  generally 
that  of  having  faculties  and  using  them.  It  is 
the  luck  of  forecast,  insight,  and  judgment, 
born  in  the  sky,  to  be  used  with  energy  on  earth. 
It  has  been  said  that  lucky  men  are  often  more 
the  creators  than  the  creatures  of  circumstances. 

A  restless  and  progressive  people  like  ours  is 
prone  to  speculation,  because  it  consorts  with 
enterprise  and  growth;  but  ordinary  business 
men,  who  have  the  reputation  of  being  specula- 
tive, are  not  generally  regarded  as  the  best 
credit  risks.  Dreams  of  quickly  acquired 
wealth,  without  industry,  are  apt  to  bear  one 
away  from  simple  integrities  into  very  un- 
certain regions;  and  capital  fights  shy  of 
"plungers." 


POINTS  ON  GIVING  CKEDIT.  81 

Yet  it  is  sometimes  difficult  to  draw  the  line 
between  speculation  and  commendable  enter- 
prise. Popular  sentiment  concerning  a  man's 
conduct  of  affairs  is  largely  modified  by  his  ul- 
timate success  or  failure;  and  again,  what  at 
one  time  might  properly  be  considered  specu- 
lative and  rashly  hazardous  may,  at  another, 
be  really  a  prudent  process  of  dealing.  So  may 
the  undertaking  of  a  wealthy  man  be  entirely 
within  the  scope  of  his  legitimate  business,  and 
yet  a  reckless,  speculative  venture  for  one  with 
smaller  resources. 

It  is  to  be  noted,  that  speculations  in  one's 
own  line  of  business  seldom  look  as  inviting  to 
him  as  something  outside,  with  which  he  is  less 
familiar.  It  is  the  tailor  who  takes  stock  in  a 
new  pegging-machine  for  the  shoemaker,  and  it 
is  the  latter  who  leaves  his  last  to  invest  in  a 
patent  goose  for  the  tailor. 

Sharp  men  with  schemes  prefer  to  avoid  those 
who  are  practically  acquainted  with  the  details 
of  the  project  they  seek  to  promote.  There  is 
no  scope  for  the  play  of  the  imagination — not 
distance  to  lend  enchantment. 

In  very  many  cases  of  failure,  it  is  found  that 


82  GIVING  AND  GETTING   CREDIT. 

the  insolvent  had  become  entangled  in  operations 
not  necessarily  connected  with  his  regular  busi- 
ness. "  The  lofty  and  sounding  phrase  of  the 
manifesto"  had  seduced  him  into  some  specious 
undertaking,  which  has  ended,  so  to  speak,  in  a 
squirrel-track  up  a  tree. 

Farther  down  the  list  is  the  business  man 
who  is  also  an  amateur  gambler.  It  needs 
no  gypsy  to  foretell  his  fortunes,  whether  he 
runs  up  against  faro  games,  habitually  bets 
on  the  races,  or  plays  against  Wall  Street  on 
margins. 

If  all  these  dollar  traps  were  honestly  con- 
ducted, and  "luck"  might  be  relied  upon  to 
break  even,  the  money,  in  the  long  run,  would 
surely  go  to  the  "kitty"  in  "percentages," 
"odds,"  or  "commissions."  It  is  the  amateur, 
the  "lamb,"  who  "pays  the  freight." 

Legitimate  business  implies  mutual  advantage 
through  the  interchange  of  equivalents;  it  is 
humanizing  and  beneficent.  In  gambling, 
mutual  benefit  is  impossible.  It  is  reckless,  un- 
thrifty, and  demoralizing ;  and,  once  bitten  by 
the  gambling  tarantula,  the  sufferer  seldom 
learns  wisdom  from  what  he  suffers. 


POINTS  ON   GIVING   CREDIT.  83 

A  successful  New  York  merchant  discourses 
substantially  as  follows : 

"  I  have  no  use  for  a  man  who  gambles  or 
gets  drunk,  and  I  will  not  sell  him  goods  on 
credit  if  I  know  the  fact.  When  I  open  a  new 
account,  I  ask  the  debtor  how  far  he  wishes  to 
go,  and  keep  him  to  his  limit,  which  I  place 
against  his  account  in  the  ledger.  I  want  to 
know  what  kind  of  creditors  he  has  to  lean 
upon.  If  his  capital  is  limited  for  the  amount 
of  his  business,  I  prefer  that  he  shall  confine  his 
purchases  on  credit  to  a  few  houses.  It  is  for 
his  own  interest  also,  because,  if  he  buys  every- 
where, and  gets  behind  in  his  collections  and 
payments,  some  one  of  his  creditors  will  be  sure 
to  jump  down  on  him,  and  close  him  up.  I 
don't  want  to  do  business  for  nothing,  and  when 
it  is  necessary  to  say  cno,'  I  do  so  boldly,  but 
without  unkindness. 

"  Those  concerns  which  habitually,  and  upon 
the  smallest  pretence,  make  claims  for  allow- 
ance, or  deduction,  thinking  they  will  be  granted 
for  fear  of  losing  trade,  I  meet  with  manly  re- 
sistance, rather  than  the  'mush  of  concession.' 
I  make  no  such  peace-offerings  in  business,  un- 


84  GIVING   AND   GETTING   CREDIT. 

less  justice  requires  it.  I  look  upon  them  as 
defeats,  and  they  bring  no  thanks. 

"There  is  a  little  in  'luck,'  but  the  best  credit 
man  is  he  who  makes  fewest  losses  and  holds 
trade.  He  should  have  good  common-sense, 
a  knowledge  of  human  nature,  experience  of 
affairs,  and  be  naturally  cautious  and  conser- 
vative. I  am  superstitious  about  giving  a 
man  credit  after  I  have  turned  him  down,  un- 
less there  is  a  change  in  his  circumstances. 
Whenever  I  have  been  persuaded  to  do  so,  I  have 
lost  by  it.  It  is  a  good  sign  to  see  a  man  take 
his  sons  into  partnership.  I  am  chary  of  a  man 
who  does  business  in  the  name  of  his  wife,  nor 
will  I  trust  any  concern,  whatever  its  rating  and 
repute,  if  my  instincts  are  against  it." 

Presentiments  in  regard  to  extending  credit, 
derived  from  so-called  "  instinct"  or  "  intuition," 
are  common  among  merchants  and  salesmen, 
and  such  estimates  are  not  necessarily  indepen- 
dent of  reason,  or  altogether  unreliable. 

Conclusions  sometimes  seem  to  leap  into  the 
mind  from  nowhere,  while  the  fact  is  that  the 
thinking  faculty  has  reasoned  them  out  without 
realizing  what  it  was  about.  They  are  the  fruit 


POINTS  ON  GIVING   CREDIT.  85 

of  an  unconscious  exercise  of  the  intellect,  which 
has  been  swiftly  registering  a  multitude  of  per- 
ceptions, such,  in  our  case,  as  the  appearance 
and  bearing  of  a  man,  his  method  of  buying, 
the  order  and  arrangement  of  his  store,  and 
numerous  other  conditions  which  surround  him. 

Moreover,  it  is  a  well-known  fact  that  we  are 
almost  invariably  attracted  or  repelled,  in  a 
greater  or  less  degree,  by  the  personality  of  a 
stranger,  and  we  should  sometimes  be  at  a  loss 
if  compelled  to  express  in  words  the  reason  for 
our  impressions,1  yet  experience  teaches  that 
they  are  quite  apt  to  be  correct.  Every  face  is 
either  "  a  history  or  a  prophecy,"  and  we  are  rea- 
sonably justified,  therefore,  in  paying  heed,  in 
the  matter  of  estimating  credit,  to  what  we  call 
our  "intuitions." 

Within  recent  years,  the  Jewish  race  has  ac- 
quired a  remarkable  ascendancy  in  financial  and 
commercial  affairs  in  most  of  our  trade  centres ; 
and  it  cannot  be  denied  that  their  keen  and  ac- 
tive rivalry  has  developed,  with  some,  a  degree 
of  prejudice,  expressed  often  by  invidious  re- 

1  "I  do  not  like  you,  Dr.  Fell ; 

The  reason  why,  I  cannot  tell,"  etc. 


86  GIVING   AND   GETTING  CREDIT. 

marks  concerning  their  characteristics  and 
methods.  But  candid  men  will  admit  that  their 
success  is  chiefly  due  to  a  natural  genius  for 
business,  complemented  by  enterprise,  self-con- 
fidence, and  tireless  energy.1 

It  is  a  brilliant  race,  with  a  strange  history, 
and  the  annals  of  every  art,  and  every  science, 
are  adorned  with  illustrious  Jewish  names. 
They  have  been  less  conspicuous  as  soldiers,  in- 
ventors, manufacturers,  and  are  seldom  tillers 
of  the  soil;  but  statesmanship,  philosophy, 
economics,  jurisprudence,  medicine,  letters, 
music,  finance,  have  all  been  enriched  by  their 
labors.  Nor  are  they  less  distinguished  in  the 
field  of  philanthropy  and  practical  charity.2 

1  The  story  is  told  of  a  Jewish  new-comer  in  New 
York  who,  when  asked  how  he,  a  stranger  with  small 
means,  and  speaking  English   indifferently,  dared  to 
plunge  into  competition  with  our  two  million  people, 
made  the  characteristic  reply  :   "  But  dose  two  million 
beeples  must  compete  with  me  too,  ain't  it?" 

2  Those  who  have  been  led  to  believe  that  the  Jews  are 
generally  harsh,  unfeeling,  and  exacting  employers  are 
misinformed.     A  recent  report  of  the  United   States 
Commissioner  of  Labor,   giving  statistics  concerning 
the  condition  of  working- women  throughout  the  coun- 
try,  declares  that  female  employees  are  treated  with 
more  kindness  and  consideration  by  Jewish  employers 
than  by  any  others. 


POINTS  ON  GIVING   CREDIT.  87 

Among  our  Jewish  merchants  are  many  who 
are  ideal  business  men;  just,  kind,  sensible, 
prudent,  with  a  high  sense  of  personal  honor 
and  obligation,  and  alive  to  the  value  of  an 
untarnished  credit.  It  will  be  admitted,  also, 
that  there  are  some  who  are  unpleasantly  avar- 
icious and  selfish,  crafty  in  dealing,  "fresh" 
and  arrogant  in  prosperity.  A  considerable 
proportion  of  our  more  recent  Hebrew  immi- 
grants are  ignorant  and  squalid,  with  charac- 
teristics as  repulsive  to  their  intelligent  and  en- 
lightened congeners  as  to  others. 

Yet  withal,  the  country  could  but  ill  spare  its 
enterprising  and  indomitable  Jewish  citizens; 
and  surely  the  time  has  come  when  no  social  or 
commercial  discrimination  should  confront  them 
as  a  class,  on  account  of  race  or  religion.  It 
is  just  and  broadly  politic  that  the  credit  of 
every  Jewish  concern  should,  like  that  of  any 
other,  stand  upon  its  individual  character,  its 
record,  and  its  resources. l 

1  The  Jewish  house  of  the  Rothschilds  is  probably  the 
most  shining  example  of  what  financial  genius  can  ac- 
complish, when  joined  with  integrity  and  favored  by 
fortune. 

The  house  was  founded  by  Mayer  Anselm  Bauer  (born 


88  GIVING  AND   GETTING   CREDIT. 

It  is  remarkable,  that  countries  differing  wide- 
ly in  their  social  and  economic  conditions  appear 
to  use  credit  relatively  to  the  balance  of  their 
trade.  For  example,  Germany,  Canada,  and 
Siam  contrast  strongly ;  yet  it  is  believed  that,  in 
each,  ninety  per  cent  of  the  business  is  done 
upon  credit. 

American  Consuls  reporting  from  Belgium, 
prosperous  and  progressive,  and  also  from 
China,  at  the  time  prosperous  but  stationary, 
declare  alike  that  eighty  per  cent  of  all  trans- 
actions are  based  on  credit.  Somewhat  vague 

1743) ,  who  became  a  money-lender  at  the  sign  of  the 
"Red  Shield,"  (Rothschild)  in  Frankfort.  When,  in 
1806,  the  Elector  of  Hesse-Cassel  had  to  flee  before 
Napoleon,  he  entrusted  five  millions  in  silver  to  Roths- 
child, who  buried  it  in  his  garden  for  a  time,  and  eight 
years  after  repaid  it  with  the  most  scrupulous  fidelity. 
This  was  the  groundwork  of  his  prosperity.  Mayer 
Anselm  died  in  1812,  leaving  five  sons,  who  established 
branches  in  the  chief  financial  centres  of  Europe,  the 
brothers  being  equally  interested.  Nathan  Mayer,  who 
died  in  1836,  has  been  regarded  as  the  financial  genius 
of  the  family. 

Various  estimates  have  been  made  of  the  wealth  of 
this  colossal  house,  which  has  been  called  "the  seventh 
great  power  of  Europe,"  but  they  must  be  largely  con- 
jectural. It  has,  however,  been  prophesied,  by  men  ex- 
perienced in  large  financial  matters,  that,  before  the 


POINTS  ON   GIVING   CKEDIT.  89 

consular  estimates  of  the  proportion  of  business 
done  upon  credit  in  France  and  Italy  place  it  at 
sixty-five  per  cent  of  the  total,  while  Holland 
leads  the  van  as  the  most  cash-paying  nation  in 
the  world. 

As  there  is  probably  no  country  where  credit 
is  extended  so  freely,  so  public  sentiment  is  more 
lenient  in  the  United  States,  in  regard  to  busi- 
ness failures,  than  in  other  countries,  and  in- 
stances of  complete  recovery  are  more  numerous 
here.  The  British  trader  is  more  conservative 
than  the  American ;  he  neither  gets  rich,  nor  is 
ruined  as  quickly. 

close  of  the  next  century,  the  Rothschilds  will  be  worth 
five  thousand  million  dollars.  It  has  always  been  the 
policy  of  the  Rothschilds  to  build  up  rather  than  tear 
down,  wherein  they  differ  from  some  of  our  American 
financiers  ;  and  in  all  the  generations  of  the  family  not 
one  member  of  it  has  brought  a  stain  upon  his  character, 
either  as  regards  his  integrity  or  the  purity  of  his  life. 
When  the  widow  of  Mayer  Anselm  was  upward  of 
ninety  years  old,  a  brilliant  fete  was  given  in  her  honor. 
She  was  quite  deaf,  and  could  not  hear  ordinary  con- 
versation, but  she  observed  that  those  around  her 
seemed  anxious,  and  were  talking  earnestly.  "  What  is 
it  all  about?"  she  inquired.  "Bad  news  has  come,  and 
they  are  afraid  we  are  going  to  have  war,"  was  the  re- 
ply. "Oh,  there  won't  be  any  war, "  said  the  old  lady, 
"for  my  sons  shan't  give  the  kings  any  money." 


90  GIVING  AND  GETTING   CREDIT. 

Those  among  our  retail  traders  who  do  a 
"  high-class"  business  give  more  credit  than  do 
those  who  sell  more  cheaply  to  the  masses.  The 
middle  classes  pay  best,  and  cash  dealings  be- 
come more  general  every  year,  yet  the  class  of 
easy  buyers  and  bad  payers  does  not  seem  to 
diminish.1  As  a  nation,  we  rest  under  the  impu- 
tation of  giving  little  heed  to  economy.  With 
the  French,  by  way  of  contrast,  the  prevailing 
idea  in  every  household  is  that  of  economy ;  ex- 
travagance and  excessive  display  being  little 
known  out  of  Paris. 

1  Quoth  Panurge  to  Pantagruel :  "  You  ask  me  when  I 
will  be  out  of  debt.  The  Lord  forbid  that  I  should  be 
out  of  debt.  Be  still  indebted  to  somebody  or  other,  that 
there  may  be  somebody  always  to  pray  for  you  that  the 
giver  of  all  good  things  may  grant  unto  you  a  blessed, 
long  and  prosperous  life ;  that  will  always  speak  good 
of  you  in  every  company  and  ever  and  anon  purchase 
new  creditors  unto  you,  to  the  end  that  through  their 
means  you  may  have  a  shift  by  borrowing  from  Peter  to 
pay  Paul  and  with  other  folks'  earth  fill  up  his  ditch. 
It  is  a  divine  thing  to  lend  ;  to  owe,  an  heroic  virtue. 
Yet  doth  it  not  lie  in  the  power  of  every  one  to  be  a 
debtor.  To  acquire  creditors  is  not  at  the  disposal  of 
each  man's  arbitratement." 


CHAPTER  VI. 

COLLECTION. 

WHEN  the  executor  of  a  certain  eccentric 
physician's  estate  came  to  overhaul  his  books,  he 
found,  under  numerous  long-winded  accounts, 
the  words,  "  Paid  by  God,"  contracted  sometimes 
into  "  Paid  B.  G."  Being  a  pious  man,  he  was 
much  shocked;  until  he  discovered  that  there 
were  no  corresponding  entries  in  the  cash-book, 
and  that,  instead  of  being  used  profanely,  the 
words  signified  merely  that  the  debt  had  been 
absolved,  or  wiped  out,  by  the  divine  hand,  in 
the  death  of  the  debtor.  We  seldom  hear  of  a 
man  who  is  willing  to  die  to  pay  his  debts,  but 
there  are  many  who  are  quite  willing  to  live 
peacefully  on  and  not  pay.  And  it  is  this  class 
which  we  come  now  to  consider. 

Next  to  being  known  as  free  and  liberal  in 
granting  credits,  nothing  tends  more  to  promote 

losses  by  bad  debts,  and  to  saddle  undesirable 
91 


92  GIVING   AND  GETTING   CREDIT. 

customers  upon  a  house,  than  the  reputation  of 
being  lax  and  easy-going  in  collecting  its  dues. 
As  a  rule,  that  concern,  whether  it  deals  at 
wholesale  or  retail,  which  enforces  prompt  pay- 
ments, is  more  respected,  and  loses  little  if  any 
good  trade  by  it. 

There  are  of  course  times  and  cases  when  it  is 
humane  and  expedient  to  show  forbearance  to  a 
dilatory  debtor ;  but  the  slipshod  account  which 
is  perpetually  in  arrears,  and  can  never  be 
brought  to  a  balance,  merits  little  consideration, 
and  is  a  good  one  to  throw  overboard.  It  is 
customers  of  this  kind  who  avoid  the  patient 
and  confiding  house  they  owe,  and  sneak  into 
rival  establishments  with  their  ready  money, 
in  order  to  obtain  cash  discounts  upon  their 
purchases. 

A  New  York  merchant  insists  that  a  concern 
may  make  more  money,  and  prove  a  better 
credit  risk  in  the  long  run,  if  its  capital  is  scant, 
or  barely  sufficient,  than  if  it  be  superabundant. 
And,  he  adds,  that  many  who  began  rich,  and 
are  now  poor,  would  now  be  rich,  if  they  had 
been  poor  at  the  start.  His  reason  is,  that  the 
house  which  must  have  its  money  to  meet  en- 


COLLECTION.  93 

gagements  will  be  more  active,  will  discriminate 
more  cautiously  in  its  credits,  and  will  not  per- 
mit overdue  accounts  to  accumulate,  which,  like 
eggs,  are  apt  to  become  addled  with  the  lapse  of 
time. 

In  historic  times  the  debtor  was  at  the  mercy 
of  his  creditor.  The  ancient  Romans  cut  the  in- 
solvent into  pieces,  and  distributed  them  among 
his  creditors ;  and,  not  so  very  long  ago,  the  Eng- 
lish clapped  their  helpless  debtors  into  jail,  and 
kept  tljem  there  until  they  paid — or  died.  But 
the  pendulum  has  swung,  and,  under  the  pres- 
ent condition  of  our  laws,  the  creditor  is  practi- 
cally at  the  mercy  of  his  debtor. 

The  American  people  are,  in  many  respects, 
prodigious  sufferers  from  that  uncertainty  of  the 
law  which  Burke  called  the  "  essence  of  tyran- 
ny." The  nation  is  commercially  one,  but  the 
relations  of  creditor  and  debtor,  under  the  laws 
of  the  different  States,  vary  essentially  touch- 
ing the  rights  and  remedies  of  the  one,  and  the 
duties  and  liabilities  of  the  other ;  and  they  are, 
moreover,  constantly  changing. 

The  result  is,  that  many  times  the  too  confid- 
ing or  unwary  creditor  finds  himself  unex- 
7 


94  GIVING   AND   GETTING    CREDIT. 

pectedly  confronted  with  homestead,  exemption, 
preferential,  insolvent,  or  other  sectional  laws, 
which  favor  the  debtor  to  such  an  extent  as 
practically  to  frustrate  all  attempts  at  collection. 
So  long  as  debts  rest  upon  a  legal  basis,  how- 
ever slippery,  uncertain,  or  inequitable  that  may 
be,  there  will  be  faithless  debtors  who  recognize 
only  their  legal  obligations.  If  the  creditor 
appeals  to  the  law,  and  such  debtor  can  evade 
payment  under  the  law,  he  will  do  so  without 
scruple. 

It  has  more  than  once  been  urged  that  laws 
for  enforcing  payment  should  be  abolished,  and 
that  credit  obligations  should  rest  solely  upon 
honor.  Decent  men  everywhere  regard  their 
word  of  honor  as  inviolable,  and  a  debt  of  honor 
as  more  binding  than  a  legal  claim.1 

Probably  such  an  innovation  would  quicken 
the  public  and  private  sense  of  honor  and  in- 

1  Charles  Fox,  the  English  statesman,  an  inveterate 
gambler,  had  long  owed  a  onsiderable  sum  to  a  trades- 
man, who  came  upon  him  one  day  while  he  was  count- 
ing a  pile  of  money.  "  Now  that  you  are  so  rich, "  said 
he,  "  you  will  surely  take  up  your  bill. "  "  I  can't, "  re- 
plied Fox,  "this  must  all  go  to  pay  debts  of  honor." 
"  And  what  is  a  debt  of  honor?"  asked  the  creditor.  "  It 


COLLECTION.  95 

tegrity,  and  credit  would  more  generally  be 
founded  on  character.  Public  opinion  would 
then  brand  the  fraudulent  or  faithless  debtor, 
and  cast  him  out  as  unworthy  of  credit. 

Many  years  ago,  one  of  the  most  respected  and 
prominent  merchants  of  New  York  declared 
that,  during  the  thirty  most  active  years  of  his 
experience  and  observation,  more  money  had 
been  expended  in  lawsuits  (if  the  value  of  time 
be  included),  than  had  been  recovered  by  the 
aid  of  collection  laws.  He  had  sold  merchan- 
dise upon  credit  to  the  value  of  many  millions, 
aiming  always  to  deal  with  those  who  esteemed 

is  an  obligation  which  rests  solely  upon  my  word, "  said 
Fox.  "Now,"  said  the  tradesman,  tearing  the  bill  to 
pieces,  "mine  is  a  debt  of  honor  too."  "Then  I  must 
pay  it,"  said  Fox,  and  he  did. 

Consul- General  Strother,  writing  from  Mexico,  says 
the  "proverbial  Spanish  sense  of  honor"  prevails  there 
in  regard  to  debts.  Credit  is  more  freely  given  and  less 
frequently  abused,  as  a  rule,  than  in  more  enterprising 
and  speculative  communities  ;  and  if  there  is  bad  faith 
in  a  failure,  it  is  almost  impossible  for  the  bankrupt  to 
recover  his  position. 

Many  instances  of  the  effect  of  this  sentiment  can  be 
found  nearer  home.  For  example :  where  States  have 
enacted  that  debts  for  spirituous  liquors  should  not  be 
collectible  at  law,  payments,  as  a  rule,  have  been 
prompt  and  satisfactory. 


96  GIVING   AND   GETTING   CREDIT. 

character  more  than  money,  and  making  it  the 
rule  to  credit  none  to  a  greater  extent  than  he 
would  had  there  been  no  law.  His  defaulted 
claims  he  had  always  collected,  or  compromised, 
without  a  suit. 

But  laws  to  enforce  collections  will  never  be 
rescinded  so  long  as  the  innocent  need  protection 
from  the  guilty  and  designing.  The  matter 
is  only  referred  to  here  in  order  to  bring  out 
more  clearly  the  fact,  that  the  majority  of  men 
pay  their  debts  from  quite  other  reasons  than 
because  they  can  be  legally  compelled. 

The  sense  of  moral  obligation  is  even  a 
stronger  motive  with  great  numbers  of  people 
than  the  sentiment  of  honor.  Some  unseen 
force  makes  the  grass  grow,  and  the  stars  shine, 
and  whatever  form  of  creed  men  hold,  all  feel 
that  they  are  expected  to  do  right,  and  generally 
admit  that  somehow,  and  somewhere,  they  must 
account  to  the  Intelligence  behind  that  force  if 
they  do  wrong.  They  know  also  that  false 
promises  and  broken  engagements  are  not  right. 

There  are  other  potent  influences  or  springs 
of  action,  such,  for  instanc'e,  as  policy,  pride, 
or  friendship,  which  move  honest  men  to  fulfil 


COLLECTION.  97 

their  obligations,  when  they  are  not  provoked 
into  obstinacy  by  reproaches  and  threats.  All 
these  facts  lead  up  to  the  proposition  that  many 
tedious  and  expensive  lawsuits  and  losses  might 
have  been  avoided,  had  the  fumbling  creditor 
better  understood  the  characteristics  of  his  debt- 
or, and  wrought  upon  them  with  ingenuity  and 
patience. 

In  cases  of  fraudulent  default,  the  creditor's 
expedients  are  limited  to  out-manoauvering  the 
juggling  debtor  by  some  swift  master-stroke, 
such,  perhaps,  as  recovering  the  goods  by  re- 
plevin, or  to  those  legal  proceedings  which  the 
circumstances  warrant.  Threats  are  sometimes, 
but  not  often,  effective ;  the  sharp  knave  regards 
them  as  the  letting  off  of  steam  which  is  a  sign 
that  the  vessel  is  not  yet  going  to  sea.  If 
menace  is  used,  that  is  most  effective  which  lies 
in  the  firmness,  not  the  irritation,  of  speech. 
When  legal  measures  are  once  decided  upon, 
they  should  be  prompt  and  resolute. 

It  is  the  custom,  with  some  concerns,  to  accept 
the  first  offer  of  a  bankrupt  in  full  discharge 
of  his  obligations,  unless  fraud  is  suspected, 
and,  in  many  cases,  this  is  certainly  judicious 


98  GIVING  AND  GETTING   CREDIT. 

policy.  Legal  measures  involve  the  expense  of 
lawyers,  tedious  delays,  the  loss  of  time — and 
perhaps  temper — in  attending  trial,  anxiety,  and 
the  chances  of  final  defeat.  If  in  the  end  suc- 
cessful, it  is  quite  often  found  that  acceptance 
of  the  original  offer  would  have  been  more 
economical. 

And  again,  it  is  easy  to  believe  that  a  feeling 
of  relief  may  come  to  the  broken  trader,  after 
the  shock  is  over  which  the  announcement  of 
his  failure  has  caused.  The  crisis  is  past,  anx- 
iety over  ways  and  means  to  meet  maturing 
obligations  is  at  an  end;  he  feels  more  cheer- 
ful, and  his  mind  naturally  reacts  toward  a  hope- 
ful view  of  his  position.  As  yet,  he  has  talked 
chiefly  with  friends  and  sympathizers,  and  is 
without  a  full  foresight  of  the  difficulties  which 
probably  await  him.  His  first  offer  is, therefore, 
likely  to  be  his  best. 

Creditors  are  not  necessarily  harsh  and  per- 
verse. On  the  contrary,  all  are  themselves 
debtors,  and  the  majority  will  probably  express 
sympathy,  and  give  words  of  encouragement  to 
the  unfortunate  dealer.  But  there  are  generally 
some  who  must  frown  and  scold,  and  the  man 


COLLECTION.  99 

in  difficulties  is  almost  certain  to  encounter  in- 
difference and  censure,  and  perhaps  even  im- 
putations upon  his  integrity,  whatever  the  cir- 
cumstances of  the  case.  Unexpected  obstacles 
and  shrinkages  confront  him,  promised  remit- 
tances are  delayed,  his  business  falls  to  pieces. 
At  length  he  becomes  despondent,  or  exasper- 
ated, and  modifies  his  first  offer. 

A  few  mercantile  houses  have  made  it  an  in- 
flexible rule — never  to  compromise  with  a  delin- 
quent debtor,  but  to  reduce  all  overdue  accounts 
to  judgments,  and  hold  them  for  a  hundred 
cents  on  the  dollar,  with  interest.  This  seems 
a  pitiless  rule  of  action,  to  which  no  compas- 
sionate creditor  could  long  adhere,  because  it 
does  not  discriminate  in  its  treatment  of  an 
honest,  but  unfortunate  man,  and  a  fraudulent 
knave.  Nor,  aside  from  its  inhumanity,  does 
the  success  of  its  results,  so  far  as  can  be  learned, 
recommend  it  as  a  gainful  course. 

The  concern  which  adopts  this  principle 
toward  its  debtors  may  be  known  and  avoided 
by  the  fraudulent,  but  others  also  are  deterred 
from  dealing  with  it.  It  becomes  unpopular 
with  the  trade.  People  have  no  liking  for  such 


100  GIVIKG   AKD   GETTING   CREDIT. 

a  house.  As  it  does  not  give,  neither  does  it  re- 
ceive good -will.  The  influence  of  the  debtor 
and  his  friends  is  forever  against  it.  As  a  co- 
creditor,  its  selfish  policy  often  retards  or  de- 
feats the  settlement  which  other  creditors  desire, 
and  provokes  them  to  resentment.  And,  for  all 
this,  such  a  concern  receives  no  compensation 
beyond  the  mere  gratification  of  a  vindictive 
feeling,  because  it  appears  to  get  no  better  re- 
turns in  the  end  than  the  more  lenient  creditor. 

There  is  hope  of  a  debtor  who  has  exceptional 
business  ability,  with  character,  youth,  health, 
and  energy,  or  of  one  who  has  expectations  of 
inheritance,  or  wealthy  relatives  who  will  stand 
by  him.  But  chances  of  payment  are  too  re- 
mote for  a  judgment  against  the  ordinary  bank- 
rupt trader  to  be  a  very  valuable  asset,  espe- 
cially if  he  is  heavily  in  debt.  If,  however,  he 
can  manage  to  compromise  with  the  larger  credi- 
tors, he  sometimes  pays  the  smaller  ones  in  full, 
in  order  to  be  able  to  use  his  name. 

When  John  Doe  finds,  after  his  failure,  that 
he  can  neither  compound  nor  secure  a  legal 
discharge,  he  frequently  continues  on  "under 
cover."  He  puts  up  the  name  of  his  wife,  or 


COLLECTION.  101 

perhaps  a  friend  buys  in  the  old  stock'  and  fix- 
tures for  him  at  a  bargain,  and  he  conducts  the 
business  under  the  style  of  the  "  John  Doe  Com- 
pany." He  thus  places  himself  out  of  the  reach 
of  his  creditors,  and  claims  against  him  are 
worthless.  There  is,  to  be  sure,  a  chance  that 
he  may  prosper,  and  quietly  buy  them  up  after 
a  few  years,  as  he  can  make  terms.  But,  as  a 
rule,  concerns  do  not  prosper  under  borrowed 
plumes ;  they  find  it  almost  impossible  to  regain 
the  confidence  of  the  mercantile  community  and 
a  respectable  credit,  and  have  all  they  can  do 
to  keep  along  without  paying  old  debts. 

Practical  experience  suggests  that  the  creditor 
should  verify  the  statements  of  the  defaulting 
debtor,  and  possess  himself  of  all  the  facts  of 
the  case  before  he  accepts  offers  of  settlement. 
"My  estate  is  naught,  it  is  naught,"  saith  the 
fraudulent  bankrupt ;  but,  after  he  hath  settled 
for  a  few  cents  on  the  dollar,  he  goeth  his  way, 
boasting  of  the  relative  who  will  lend  him 
moneys  to  start  afresh.  It  is  not  well  for  the 
business  world  that  such  debtors  get  off  too 
easily. 

It  does  not  seem  desirable,  then,  that  a  progres- 


102  GIVING   AND   GETTING   CKEDIT. 

sive  rnercha&t;  should  apply  any  arbitrary  rule  of 
final  action  to  all  his  insolvent  debtors  alike. 
Invariable  harshness  and  obstinacy  is  neither 
just  nor  politic,  while  invariable  leniency  may 
pay  a  premium  to  fraud  and  incompetence. 
Circumstances  vary  in  each  case,  and  each 
should  therefore  stand  upon  its  own  special 
moral  and  legal  equities  and  expediencies. 

It  is  the  principal  creditors — the  "  pall  bearers" 
— who  are  most  interested  to  investigate  the  cir- 
cumstances of  a  failure,  and  most  anxious  to 
reach  the  best  and  quickest  results.  Their  ac- 
tion and  recommendation,  therefore,  usually  set 
the  pace  for  the  smaller  creditors,  if  there  be  no 
suspicion  that  they  are  attempting  to  secure 
some  advantage,  whereby  they  can  gobble  up 
all  the  assets.  In  compromising  claims,  a  quite 
common  basis  of  settlement  is  33£  per  cent  of 
the  amount  due. 

Not  infrequently,  a  large  creditor  keeps  in  the 
background,  and  as  much  as  possible  conceals 
his  loss,  lest  it  may  damage  his  reputation  and 
impair  his  credit.  Many  small  creditors  give 
their  claims  little  or  no  attention,  preferring  to 
charge  the  account  off,  rather  than  expend  time 


COLLECTION.  103 

and  money  in  following  it  up.  The  sluggish  in- 
difference and  inaction  of  small  creditors  is  one 
of  the  most  perplexing  obstacles  in  the  way  of 
speedy  settlement  of  a  broken  trader's  affairs. 
English  bankrupt-law  officials  complain  of  this 
same  inertia,  and  it  has  also  proved  a  retarding 
factor  under  our  own  insolvent  and  bankrupt- 
law  proceedings. 

The  merchant,  who  has  a  claim  for  collection 
at  some  distant  point,  takes  a  leap  in  the  dark 
if  he  entrusts  it  to  a  lawyer  located  there,  with- 
out some  certain  knowledge  of  his  character  and 
responsibility.  Complaints  are  constantly  made 
of  mismanagement  and  bad  faith,  in  the  conduct 
of  such  cases,  on  the  part  of  unprincipled  attor- 
neys, and  also  of  their  exorbitant  charges. 
Some  of  these  gentlemen,  learned  in  the  law, 
are  prone  to  look  upon  the  sum  total  of  a  claim 
placed  in  their  hands  as  all  too  small  to  bear 
dividing,  and  they,  therefore,  calmly  bolt  the 
whole  of  it,  knowing  that  the  far-away  credi- 
tor is  practically  helpless. 

The  relations  between  the  practising  attorney 
in  a  town,  especially  a  small  town,  and  the 
party  to  be  collected  from,  are  often  so  friendly 


104  GIVING  AND   GETTING   CREDIT. 

as  to  prevent  the  former  from  pushing  a  claim 
vigorously  which  comes  to  him  from  a  remote 
and  unknown  source.  The  lawyer's  interests 
are  largely  local,  and  his  expectations  of  support 
and  advancement  rest  more  upon  the  esteem 
and  good-will  of  his  townsmen  and  neighbors 
than  upon  the  cold  a  pprobation  of  strangers 
whom  he  has  never  seen,  and  may  never  see  or 
hear  of  again.  It  is  only  reasonable,  therefore, 
to  expect,  that  in  many  cases  the  interests  of  a 
friend  and  fellow-citizen  will  be  favored  and 
promoted,  at  the  expense  of  a  personally  un- 
known client ;  and  the  experience  of  merchants 
bears  out  this  expectation. 

It  is  a  better  plan,  if  claims  for  collection  are 
not  given  to  one's  own  trusted  attorney,  to  place 
them  in  the  hands  of  a  responsible  Collection 
Agency.  This  generally  involves  no  cost  to  the 
creditor,  further  than  a  small  docket  fee,  unless 
the  claim  is  collected,  in  which  case  ten  per 
cent  of  the  same  is  retained.  Special  terms 
are  made  upon  large  claims.  • 

If  legal  proceedings  are  found  necessary  to 
compel  payment,  the  creditor  is  required  to  ad- 
vance the  sum  which  will  be  needed  for  disburse- 


COLLECTION.  105 

ments  in  the  suit,  some  portion  or  all  of  which 
may  be  returned  to  him,  if  it  results  success- 
fully. 

Some  of  the  leading  Mercantile  Agencies  take 
charge  of  the  interests  of  creditors  in  cases  of 
insolvency,  and  do  also  an  extensive  general  col- 
lection business.  They  are  especially  qualified 
to  perform  such  services  advantageously,  be- 
cause of  having  active  and  experienced  repre- 
sentatives at  all  points.  These  deputies,  or  sub- 
agents,  obtain  personal  interviews,  and  often 
bring  out  facts  and  explanations  which  ward  off 
lawsuits,  restore  harmony,  and  secure  prompt 
payment.  Like  David  Crockett's  coon,  the  re- 
fractory debtor  is  willing  to  come  down  without 
waiting  to  be  fired  at. 


CHAPTER  VII. 

CORPORATIONS. 

A  CORPORATION  is  created  by  the  law,  upon 
the  general  principle  that  the  resources  of  many 
may,  with  advantage,  be  combined  for  certain 
specific  purposes,  under  one  flexible  manage- 
ment.1 

The  advantages  of  a  corporation  over  a  part- 
nership are  that,  while  it  may  buy  and  sell,  sue 
and  be  sued,  and  conduct  its  proper  business 
like  an  individual,  its  shareholders  are  under  no 
obligation  to  pay  its  debts.  They  are  liable 
only  to  a  certain  extent,  which  varies  according 
to  the  laws  of  the  State  from  which  its  charter, 
or  franchise,  is  derived.  New  York  laws,  for 
example,  are  considered  as  among  the  best  for 

1  Chief  Baron  Man  wood,  an  English  jurist,  was  the 
author  of  the  famous  syllogism  :  "  None  can  create  souls 
but  God  :  corporations  are  created  by  the  King ;  there- 
fore a  corporation  can  have  no  soul. "  This  is  perhaps 
the  reason  why  stock  companies  have  so  little  sense  of 
moral  responsibility. 

106 


CORPORATIONS.  107 

the  creditor,  and  those  of  West  Virginia  as 
among  the  most  "liberal,"  or  poorest  for  the 
creditor. 

The  corporation  idea  is  not  new ;  it  was  put 
'n  practice  by  the  ancient  Romans,  and,  along 
down  the  centuries,  corporations  have  superseded 
ordinary  partnerships  in  commercial  enterprises 
which  were  extra  hazardous,  or  which  required 
large  capital.  Chancellor  Kent  declared,  in 
1820,  that  the  growth  of  joint  stock  companies 
in  New  York  was  "astonishing,"  and  in  1821 
the  State  tried  in  vain  to  check  their  formation.1 

1  The  tendency  to  multiply  corporations  has,  however, 
never  been  as  great  as  just  prior  to  the  panic  of  1893. 
The  number  of  certificates  of  incorporation  for  the  for- 
mation of  stock  corporations  filed  in  the  office  of  the 
Secretary  of  State  at  Albany,  from  January  1,  1893,  to 
June  1,  1893,  was  689.  This  is  the  largest  number  of 
stock  corporations  organized  during  any  five  months  in 
the  history  of  the  office.  During  the  corresponding 
period  in  1892,  only  479  were  formed,  the  increase  in 
1893  being  more  than  44  per  cent. 

New  York  passed  its  first  law  for  the  taxation  of  cor- 
porate capital  and  earnings  in  1880 ;  this  law  was  crude 
and  unsatisfactory,  and  in  1885  it  was  amended.  A 
very  considerable  revenue  is  now  derived  from  this 
source,  although  it  is  claimed  that  the  larger  proportion 
of  what  is  actually  due  still  fails  to  reach  the  State 
treasury. 


108  GIVING    AND   GETTING   CREDIT. 

In  1844,  joint  stock  companies,  with  a  few 
exceptions,  were  for  the  first  time,  in  England, 
enabled  to  incorporate  under  a  general  law,  that 
is,  without  applying  for  a  special  charter.1  But 
members  of  these  companies  were  still  respon- 
sible for  the  debts  to  the  whole  extent  of  their 
fortunes.  In  1855,  limited  liability  was  intro- 
duced ;  but  companies  with  this  privilege  must 
use  the  word  "Limited"  after  their  names.  It 
was  said,  in  1890,  that  one-third,  at  least,  of 
English  commerce  was  in  the  hands  of  incorpo- 
rated companies. 

Many  corporations  have  been  formed  in  this 
country  for  all  sorts  of  purposes  permitted  by 
law,  and  in  various  fashions.  A  common  plan 
has,  in  times  past,  been  substantially  as  follows : 
an  inventor,  for  example,  with  his  associates, 
organized  a  corporation,  to  which  he  transferred 
the  rights  to  his  invention,  receiving  as  pay- 
ment therefor  all  the  shares  of  the  company. 
The  stock  was,  by  this  process,  accounted  "  full- 
paid  stock,"  and  the  holders  were  supposed  to  be 

1  The  objects  of  certain  companies,  as  for  example, 
railways,  involve  an  interference  with  private  rights 
which  requires  special  and  direct  charter,  or  authority, 
from  the  Government. 


COBPOKATIONS.  109 

exempt  from  liability  for  debts  of  the  company. 
The  inventor's  associates  then  bought  from  him 
a  part  of  the  stock  at  prices  before  agreed  upon ; 
the  purchase-money,  or  a  part  of  it,  was  placed 
in  the  "treasury"  for  a  "working  capital,"  and 
the  company  was  ready  for  business.  This  was 
also  a  favorite  method  in  working  mining 
schemes.  Thousands  of  companies  organized 
after  this  fashion  have  lived  and  died — most  of 
them  have  died. 

But  while,  in  the  absence  of  statutory  restric- 
tions, a  corporation  may  have  power  to  receive 
payment,  otherwise  than  in  money,  for  a  sub- 
scription to  its  capital  stock,  it  has  been  held 
that  stockholders  are  liable  to  creditors  for  the 
difference  between  the  reasonable  value  of  the 
property  transferred  and  the  par  value  of  the 
stock. 

The  New  York  Statutes,  of  1892,  impose  a  lia- 
bility upon  stockholders  "  for  every  debt  of  the 
corporation,  to  an  amount  equal  to  the  amount 
of  the  stock  held  by  them  respectively,  until  the 
whole  amount  of  its  capital  stock,  issued  and 
outstanding  at  the  time  such  debt  was  incurred, 
shall  have  been  fully  paid." 


110  GIVING   AND   GETTING   CREDIT. 

The  members  of  an  unincorporated  company 
are  liable  individually  for  all  its  debts,  no  matter 
what  agreement  they  make  among  themselves. 
But  there  is  no  personal  liability  attached  to 
membership  of  churches,  lodges,  clubs,  etc. 

If  persons  organize  under  a  general  law  for  a 
purpose  prohibited,  or  not  authorized,  by  it,  or 
if  they  fail  to  comply  with  its  requirements  in 
any  material  point,  or  if  the  statute  under  which 
incorporation  is  claimed  be  unconstitutional,  the 
stockholders  are  liable  as  partners. 

A  more  recent  development  is  known  as  the 
"Industrial"  corporation,  which  is  based  upon 
the  grocery,  brewery,  or  dry-goods  store,  etc. 
Among  the  reasons  usually  given  for  its  for- 
mation are,  that  the  proprietors  are  growing  old, 
and  they  wish  to  place  the  business  upon  such 
footing  that,  while  they  remain  interested  ad- 
visers, they  can  be  relieved  of  administrative 
labors  and  responsibilities,  and,  in  the  event  of 
their  death,  the  business  may  be  continued 
without  interruption  or  embarrassment.  Or 
again,  it  is  professedly  done  to  give  faithful  and 
deserving  employees  an  interest  in  the  business. 
Some  of  these  corporations  are  organized  upon 


CORPORATIONS.  Ill 

a  substantial  and  equitable  basis,  and  are  justly 
entitled  to  confidence  and  credit. 

But  the  industrial  corporation  too  often  re- 
presents a  worn-out  plant,  and  a  waning  "  good- 
will," and  the  business,  in  a  large  proportion 
of  cases,  is  found  to  be  capitalized  largely  in  ex- 
cess of  its  actual  value.  If  earnings  are  all  paid 
out  in  dividends,  as  has  been  frequently  the  case, 
the  rich  shareholder  is  reluctant  to  risk  advan- 
cing from  his  private  means  for  the  benefit  of 
poorer  ones  when  a  pinch  comes,  and  banks  do 
not,  as  a  rule,  take  kindly  to  the  paper  of  such 
concerns  without  a  good  indorser. 

A  "  trust"  is  formed  by  placing  a  majority  of 
the  shares  of  each  corporation  which  it  embraces 
in  the  control  of  persons  called  "trustees." 
These  agree  to  vote  upon  the  stock  so  held  for 
the  perpetuation  of  the  trust  during  the  time 
agreed  upon ;  to  elect  officers  in  each  corporation 
as  provided  for  by  law,  and  generally  to  direct 
the  business  of  all.  Unity  of  purpose  and  action 
is  thus  secured  in  the  management  of  vast  and 
widely  distributed  properties.1 

1  The  Standard  Oil  Trust  was  organized  in  1882,  and 
the  Cotton  Seed  Oil  Trust  in  1884.  There  are  now  trusts 


112  GIVING  AND   GETTING   CREDIT. 

The  "  trust"  was,  three  or  four  years  ago,  de- 
scribed as  a  "colossal,  gigantic  partnership, 
having  no  corporate  function,  owing  no  cor- 
porate allegiance,  and  capable  of  an  elastic  and 
irresponsible  increase  of  capital  stock.  It  may 
be  a  combination  of  corporations  as  well  as  of 
individuals,  or  firms,  and  its  limits  are  bound- 
less. It  may  embrace  a  hundred  corporations, 
or  any  number  more,  chartered  under  the  di- 
verse laws  of  forty  different  States ;  with  five 
hundred,  or  five  thousand  shareholders  in  each 
corporation,  and  each  corporation  may  be  char- 
tered to  carry  on  a  certain  business,  different 
from  either  of  the  others.  Trusts  are  now 
usually  incorporated.1 

in  a  great  variety  of  articles,  from  cradles  to  whisky 
and  coffins.  It  has  been  said  that  the  American  citizen 
has  now  to  deal  with  trusts  from  the  cradle  to  the  grave. 

1  Trusts  have,  in  some  cases,  succeeded  in  obtaining 
special  State  charters,  granting  certain  advantages  in 
the  matter  of  taxation.  The  firms  and  corporations 
which  combine  to  organize  them  turn  over  their  prop- 
erty to  the. new  corporation,  receiving  what  they  deem 
an  equivalent  in  its  stock. 

If  one  of  these  great  companies  wishes  to  be  listed  at 
the  Exchange,  some  promoters  and  stock  operators  are 
likely  to  be  joined  in  the  management,  and  its  stock 
soon  becomes  a  football  of  speculation.  Sometimes  the 


CORPORATIONS.  113 

Some  of  these  great  concerns  may  be  "  good" 
from  the  creditor's  standpoint,  but  if  their  ob- 
ject be  to  monopolize  business,  by  crushing  out 
their  competitors,  they  surely  do  not  conduce  to 
the  "goodness"  of  others.  An  individual  act, 
or  circumstance,  which  is  not  important  of  it- 
self, acquires  strength,  and  may  become  illegal, 
when  many  combine  to  give  it  force.  Union 
and  concert  invest  it  with  effect  against  the 
public  welfare.1 

Those  who  oppose  trusts  aver  that  they  are 
of  the  nature  of  conspiracies  to  enforce  private 
interests,  by  combined  action,  regardless  of  the 

practical  men  are  gradually  crowded  out  of  the  board 
to  make  room  for  more  stock-jobbers.  The  original  in- 
corporators  cannot  recover  control  of  their  property,  un- 
less through  a  receiver.  Profits  shrink  and  expenses 
increase.  Some  of  the  assets  are  converted,  in  order  to 
keep  up  the  payment  of  dividends,  and  at  length  an 
issue  of  bonds  is  made.  In  short,  the  company  is 
plundered,  until,  when  the  crash  comes,  little  or  nothing 
is  left. 

1  Chief  Justice  Gibson,  of  Philadelphia,  held  in  1821, 
that  "A  combination  is  criminal  whenever  the  act  to 
be  done  has  a  necessary  tendency  to  prejudice  the 
public,  or  to  oppress  individuals,  by  subjecting  them  to 
the  power  of  the  confederates,  and  giving  effect  to  the 
purposes  of  the  latter,  whether  of  extortion  or  of  mis- 
chief." 


114  GIVING   AND   GETTING   CREDIT. 

rights  of  others.  That  they  oppose  honest  and 
healthful  competition,  which  seeks  to  merit  suc- 
cess, with  a  ruthless  rivalry,  eager  only  to  ob- 
tain it.1  That  they  violate  the  spirit  and 
menace  the  existence  of  republican  institu- 
tions ;  are  in  restraint  of  trade, .  and  against 
public  policy. 

President  Cleveland  said,  in  his  last  inaugural 
address:  "The  existence  of  immense  aggrega- 
tions of  kindred  enterprises,  and  combinations 
of  business  interests,  formed  for  the  purpose  of 
limiting  production  and  fixing  prices,  is  incon- 
sistent with  the  fair  field  which  ought  to  be  open 
to  every  independent  activity.  .  .  .  They  fre- 
quently constitute  conspiracies  against  the  in- 
terests of  the  people,  and  in  all  their  phases 
they  are  unnatural  and  opposed  to  our  American 
sense  of  fairness." 

High  State  courts  have,  in  recent  years,  re- 
peatedly declared  trusts  illegal  upon  various 
grounds.  Among  other  reasons  it  is  held,  that 


1  "A  competitor  strives  to  surpass  by  honest  means; 
he  cannot  succeed  so  well  by  any  other ;  a  rival  is  not 
bound  by  any  principle  ;  he  seeks  to  supplant  by  what- 
ever means  seem  to  promise  success.  "—Crabbe. 


CORPORATIONS.  115 

the  corporations  which  they  embrace  are  vested 
by  the  chartering  States  with  certain  powers 
and  privileges,  on  condition  that  they  shall  be 
used  in  subservience  to  the  public  welfare,  and 
that  their  functions  can  neither  be  abdicated 
nor  delegated. 

The  text  of  the  Sherman  Anti-Trust  Law  is 
as  follows : 

"  AN  ACT  TO  PROTECT  TRADE  AND  COMMERCE 
AGAINST  UNLAWFUL  RESTRAINTS  AND  MON- 
OPOLISTS. 

"  Be  it  enacted  by  the  Senate  and  House  of 
Representatives  of  the  United  States  of  Amer- 
ica, in  Congress  assembled: 

"  SEC.  I.  Every  contract,  combination  in  the 
form  of  trust,  or  otherwise,  or  conspiracy  in  re- 
straint of  trade  or  commerce  among  the  several 
States,  or  with  foreign  nations,  is  hereby  de- 
clared to  be  illegal. 

"  SEC.  II.  Every  person  who  shall  monopo- 
lize, or  attempt  to  monopolize,  or  combine,  or 
conspire,  with  any  other  person,  or  persons,  to 
monopolize  any  part  of  the  trade  or  commerce 
among  the  several  States,  or  with  foreign  na- 
tions, shall  be  deemed  guilty  of  a  misdemeanor, 


116  GIVING   AND   GETTING   CREDIT. 

and,  on  conviction  thereof,  shall  be  punished  by 
a  fine  not  exceeding  $5,000,  or  by  imprisonment 
not  exceeding  one  year,  or  by  both  said  punish- 
ments, in  the  discretion  of  the  court. 

"SEC.  III.  Every  contract,  combination  in 
the  form  of  trust  or  otherwise,  or  conspiracy  in 
restraint  of  trade  or  commerce  in  any  Territory 
of  the  United  States,  or  the  District  of  Colum- 
bia, is  hereby  declared  illegal. 

"SEC.  IY.  The  several  Circuit  Courts  of  the 
United  States  are  hereby  invested  with  juris- 
diction to  prevent  and  restrain  violations  of  this 

act,  AND  IT  SHALL  BE  THE  DUTY  OF  THE 

SEVERAL  DISTRICT-ATTORNEYS  OF  THE  UNITED 
STATES,  IN  THEIR  RESPECTIVE  DISTRICTS,  UNDER 
THE  DIRECTION  OF  THE  ATTORNEY-GENERAL, 
TO  INSTITUTE  PROCEEDINGS  IN  EQUITY  TO  PRE- 
VENT AND  RESTRAIN  SUCH  VIOLATIONS. 

"Approved  July  2d,  1890."  ' 

It  has  hitherto  been  found  difficult  to  sup- 
press trusts;  they  still  flourish  and  multiply, 
defying  public  sentiment,  and  managing  to 
evade  legal  restrictions.  Many  fear  that,  as 

1  It  is  found  that  this  enactment  possesses  very  little 
restraining  power. 


CORPORATIONS.  117 

they  continue  to  increase,  they  will  absolutely 
stifle  competition  in  their  respective  fields,  and, 
with  the  patronage  and  vast  resources  at  their 
disposal,  combine  to  influence  such  legislation 
as  will  give  them  a  freer  scope  and  a  firmer  seat 
in  the  saddle. 

It  is  contended,  on  the  other  hand,  that  com- 
bination must  in  some  way  replace  competition 
in  the  sphere  of  production;  that  great  organi- 
zations are  in  keeping  with  the  progressive 
spirit  of  the  age ;  that  numerous  desirable  results 
for  the  public  benefit  can  only  be  achieved  by 
uniting  the  resources  of  many,  and  that  we  have 
reached  an  era  of  development  at  which  large 
consolidations  of  capital  and  ownerships  are 
natural  and  necessary  to  social  economics  and 
advancement.  It  is  also  pointed  out  to  us,  that 
the  free  employment  of  organized  association  has 
favorably  affected  every  social  interest  in  Ameri- 
can history,  and  that  wherever  there  is  most  in- 
telligence, and  the  best  administration  of  affairs, 
there  is  the  most  corporate  life  and  activity. 

It  will  not  be  denied  that  there  are  many  cor- 
porations honestly  organized,  and  admirably 
conducted,  which  illustrate  the  best  principles 


118  GIVING   AND   GETTING    CREDIT. 

of  corporate  association,  and  show  that  they  are 
beneficent  when  not  perverted;  but  a  wide- 
spread feeling  or  conviction  also  exists,  that  the 
arrogant  and  accumulating  abuses  of  the  cor- 
porate franchise  should  be  rebuked,  and  sup- 
pressed. 

In  glancing  over  the  legion  of  companies  in- 
corporated under  our  facile  laws  during  the  last 
twenty-five  or  thirty  years,  it  may  be  noted  that 
comparatively  few  of  them  have  been  capitalized 
at  less  than  a  hundred  thousand  dollars,  and  that 
a  very  large  proportion  have  been  based  upon 
schemes  of  dreamers  and  swindlers,  which  have 
swallowed  up  all  that  has  been  put  into  them. 
Few  have  had  an  actual  capital  of  the  amount 
stated  in  their  articles  of  incorporation,  and  it  is 
unnecessary  to  say  that  the  majority  of  them 
have  utterly  perished. 

Special  caution  should  be  observed  in  extend- 
ing credit  to  a  company  which  puts  forth  its 
best  ability  to  dispose  of  its  stock ; 

To  a  company  whose  officers  will  make  no  de- 
tailed statement  of  its  affairs ; 

To  a  company  which  gives  notes,  and  has  a 
large  indebtedness  to  stockholders; 


CORPORATIONS.  119 

To  a  "  parent"  company,  or  a  company  being 
"  promoted ;" 

To  a  "sub"  company,  on  which  the  parent 
company  holds  a  large  portion  of  the  stock,  and 
exacts  a  royalty ; 

To  an  industrial  company  with  a  bonded  in- 
debtedness. 

The  creditor  will  remember  that  he  contracts 
with  the  corporation,  and  not  with  its  members, 
however  high  their  standing  and  responsibility. 


CHAPTER  VIII. 

THE  MERCANTILE  AGENCY  SYSTEM. 

SIXTY  years  ago,  we  had  no  railroads  or  tele- 
graphs, and  only  a  few  small  steamboats  plying 
on  inland  waters.  There  was  no  ocean  steam 
navigation,  for  it  was  not  until  1838  that  the 
Sirius  and  Great  Western  made  their  first 
regular  passages,  across  the  Atlantic.  The  great 
West  was  sparsely  settled,  and  the  total  popula- 
tion of  the  United  States  was  but  13,000,000. 

It  has  since  increased  to  about  70,000,000,  or 
more  than  five-fold,  while  the  volume  of  busi- 
ness has  expanded  several  times  five-fold.  Peo- 
ple then  had  fewer  wants.  They  lived  frugally, 
and  produced  for  themselves  many  articles 
which  are  now  made  exclusively  by  machinery. 
There  were  fewer  great  fortunes,  and  less  ex- 
treme poverty;  and  there  was  also  less  fraud 
and  commercial  knavery. 

Yet,  even  in  those  ancient  days,  the  lack  of 
120 


THE  MERCANTILE  AGENCY  SYSTEM.         121 

any  convenient  method  for  investigating  the 
character  and  responsibility  of  traders  began  to 
be  seriously  felt.  Inquiries  by  letter  were  slow 
and  unsatisfactory,  and  some  of  the  larger 
houses  employed  travelling  agents  to  visit  their 
customers,  and  report  upon  their  condition  and 
home  standing.  But  the  information  thus  ob- 
tained was  costly,  exclusive,  and  temporary. 

Many  relied  upon  the  references  given  them 
by  those  who  applied  for  credit.  But  it  some- 
times happened  that  houses  thus  referred  to 
looked  with  a  jealous  eye  on  the  efforts  of  rival 
concerns  to  share  the  trade  of  good  customers, 
or,  on  the  other  hand,  might  recommend  the 
extension  of  credit  to  a  doubtful  debtor,  in  order 
to  increase  the  probability  of  collecting  their 
own  claims  against  him.  In  any  case,  there 
was  no  certainty  that  the  information  thus  re- 
ceived would  be  disinterested  and  truthful. 

After  the  great  financial  troubles  of  1837, 
which  swept  so  many  business  men  into  bank- 
ruptcy, credits  were  much  restricted,  for  mer- 
chants were  all  at  sea  in  regard  to  the  condition 
of  traders  throughout  the  country.  But,  with 
the  slow  reorganization  of  affairs,  the  need  of 


122  GIVING   AND   GETTING   CREDIT. 

some  system  for  obtaining  information  became 
pressing,  and,  in  1841, "  The  Mercantile  Agency" 
was  put  into  operation  in  New  York  city. 

It  is  said  that  the  original  nucleus  was  a  book 
kept  by  the  then  prominent  house  of  Tappan  & 
Co. ,  in  which,  for  some  years,  had  been  regis- 
tered all  the  information  obtained  respecting 
its  customers.  However  this  may  be,  both 
the  brothers,  Louis  and  Arthur  Tappan,  were 
identified  with  the  organization  in  its  early 
days. 

The  business  of  the  agency  was  at  first 
limited;  but  in  1846  Mr.  Benjamin  Douglass 
was  admitted  to  a  partnership  with  Louis  Tap- 
pan,  under  the  style  of  Tappan  &  Douglass,  and 
he  at  once  assumed  the  chief  management  and 
extended  its  operations.  In  1854,  Mr.  Douglass 
succeeded  to  the  business,  and  the  style  of  B. 
Douglass  &  Co.  was  adopted,  with  the  admis- 
sion of  Mr.  Robert  Graham  Dun. 

"The  Mercantile  Agency"  now  made  rapid 
and  substantial  progress,  and  soon  gained  a  re- 
cognized and  assured  position  among  the  useful 
and  necessary  mercantile  institutions  of  the 
country.  In  1860  Mr.  Douglass  withdrew,  and 


THE   MERCANTILE   AGENCY    SYSTEM.          123 

ever  since  that  time  Mr.  Dun's  name  has  re- 
mained at  the  head  of  the  agency. 

A  number  of  agencies,  more  or  less  extensive, 
have  been  founded  for  furnishing  reports  since 
"  The  Mercantile  Agency"  began  its  operations. 
Many  merchants  will  recollect  those  of  W.  A. 
Cleveland  &  Co.,  Woodward  &  Dusenberry, 
Potter  &  Gray,  McKillop  &  Sprague,  Brad- 
street  &  Son,  etc.  The  latter  firm,  founded 
somewhere  along  in  the  fifties,  was,  a  few  years 
ago,  merged  into  "The  Bradstreet  Co.,"  which 
is  now  a  popular  an  1  flourishing  concern,  with 
many  friends  and  a  large  number  of  subscrib- 
ers. There  are  others  whose  reports  are  con- 
fined to  a  single  line  of  trade,  or  are  merely 
local,  and  others  still  which  furnish  their 
patrons  with  a  list  of  persons,  mostly  lawyers, 
in  different  localities,  who  answer  inquiries  by 
letter. 

European  Commercial  Agencies  are  con- 
ducted on  a  different  plan,  and  the  service  they 
render  their  home  patrons  would  hardly  satisfy 
American  merchants.  The  principal  one  in 
Great  Britain  is  probably  that  of  Stubbs  &  Co., 
of  London.  There  are  also  several  on  the  Con- 


124  GIVING   AND   GETTING   CREDIT. 

tinent.  South  of  the  equator  a  few  small  offices, 
or  bureaus,  exist  for  obtaining  and  dispensing 
commercial  information,  as,  for  example,  the 
"  Prudencia, "  of  Buenos  Ayres. 

It  is  the  purpose  of  the  writer  merely  to  glance 
briefly  at  the  origin,  operation,  and  economic 
principles  of  a  system.  If  special  reference  is 
made  to  "  The  Mercantile  Agency"  of  R.  G. 
Dun  &  Co.,  it  is  because  that  was  the  pioneer 
institution  of  the  kind.  It  has  seemed  fittest 
for  the  purpose  of  illustration,  and  we  will  there- 
fore follow  its  development. 

"The  Mercantile  Agency"  early  discovered 
that  the  demand  for  information  was  not  con- 
fined to  New  York,  but  existed  also  in  other 
trade  centres,  in  proportion  to  their  extended 
wholesale  traffic.  And  as  the  vast  labor  of  re- 
porting all  the  business  men  of  the  country  could 
not  well  be  performed  by  a  single  office,  or  its 
expense  borne  by  the  merchants  of  one  city,  a 
system  of  auxiliary  branch  offices  was  gradually 
extended  to  other  points  in  the  United  States 
and  Canada,  dealers  at  those  places  speedily  be- 
coming their  patrons  and  supporters. 

"The  Mercantile  Agency"  has  now  upward 


THE   MERCANTILE   AGENCY   SYSTEM.          125 

of  one  hundred  and  fifty  branch  offices,  and  it 
continues  to  establish  them  wherever  the  growth 
of  business  gives  warrant  of  their  usefulness. 

Each  of  these  branch  offices  has  its  special 
district,  or  field  of  operations,  and  its  manager 
is  responsible  for  the  accuracy  and  completeness 
of  the  reports  from  that  district. 

There  is  a  constant  interchange  of  informa- 
tion between  them,  through  the  main  office  in 
New  York.  Each  has  also  its  subscribers,  to 
whom  it  supplies  the  books  of  ratings,  the 
weekly  "Notification  Sheets"  of  changes  and 
events,  and  such  special  reports  as  may  be  re- 
quired. It  may  also  issue  circular  letters  to  its 
subscribers,  without  extra  charge,  which  enable 
commercial  travellers  to  obtain  reports  at  any 
of  its  kindred  offices  in  North  America. 

One  might  suppose  that  to  be  prepared  to 
furnish  instant  and  accurate  information  as 
to  the  character  and  responsibility  of  any  and 
every  business  man  on  the  continent,  from  Nova 
Scotia  to  the  Pacific,  or  the  remotest  cross-roads 
of  Texas,  would  furnish  scope  and  swing  enough 
for  the  most  boundless  energy.  But  not  so, 
thought  the  proprietors  of  "The  Mercantile 


126  GIVING   AND    GETTING    CREDIT. 

Agency."  They  have  also  extended  their  sys- 
tem of  branch  offices  to  the  larger  cities  of 
Europe  and  Australia,  and  developed  for  their 
patrons  reliable  sources  of  information  through- 
out the  civilized  world.  They  can  furnish  re- 
ports upon  a  Parsee  banker  of  Bombay,  a  tea 
merchant  of  China,  Formosa,  or  Japan,  a  spice 
dealer  of  Sumatra,  or  a  trader  of  San  Luis 
Potosi. 

The  representatives,  or  "reporters,"  who  ob- 
tain most  of  the  information  for  a  first-class 
Mercantile  Agency,  are  chosen  with  great  care. 
They  must  be  men  of  character,  integrity,  and 
experience ;  of  good  judgment  and  habits,  free 
from  prejudice,  and  naturally  fitted  for  the 
duties  they  have  to  perform.  These  are  often 
arduous,  and  always  responsible;  and  they  are 
apt  to  be  pleasant  or  otherwise  as  the  parties 
with  whom  they  come  in  contact  are  intelligent 
or  ignorant. 

In  the  larger  cities,  a  certain  line  of  trade  is 
generally  assigned  exclusively  to  the  care  of  a 
"  reporter"  and  his  assistants.  In  time  he  be- 
comes acquainted  with  every  dealer  in  his  line 
in  his  district.  He  knows  the  best-informed 


THE   MERCANTILE   AGENCY   SYSTEM.          127 

merchants  and  arbiters  of  credit  in  the  larger 
houses,  and  exchanges  information  with  them. 
He  interviews  bank  presidents  and  cashiers, 
watches  offices  of  record  for  transfers,  mort- 
gages, and  judgments. 

He  acquaints  himself  with  the  abilities  and 
characteristics  of  junior  partners,  managers, 
salesmen,  and  accountants,  and  has  his  own  ideas 
of  who  among  them  is  fitted,  or  fitting  himself, 
to  enter  successfully  into  business  on  his  own 
account.  A  new  concern  in  his  line  catches 
his  attention  instantly;  in  fact,  it  is  probable 
that  he  knows  all  about  its  affairs  before  its  sign 
is  up. 

He  enjoys  the  respect  and  friendship,  and  is 
often  the  confidential  adviser,  of  many  mer- 
chants in  the  line  to  which  he  is  attached. 

Reporters  and  correspondents  throughout  the 
country  are  selected  with  equal  care,  and  with 
due  regard  to  their  freedom  from  prejudice  and 
partiality,  which  might  bias  their  reports.  As 
a  check  upon  them,  or  by  way  of  verification, 
travelling  agents  are  sent  to  the  various  districts, 
who  make  independent  investigations.  In  cases 
where  the  reports  are  greatly  at  variance,  or 


128  GIVING    AND    GETTING    CREDIT. 

where  they  differ  strikingly  from  former  reports, 
the  discrepancy  is  looked  into  by  a  third  per- 
son. The  reports  of  a  first-class  agency  should, 
of  course,  be  truthful  and  explicit;  they  must 
also  be  frequently  revised,  and,  last,  but  not 
least,  promptly  furnished. 

The  excellence  of  an  agency  depends  also 
largely  on  the  universality  of  its  reports.  If  it 
can  furnish  information  on  but  one-half,  or  two- 
thirds,  of  the  traders  in  a  certain  line,  its  value 
to  a  general  dealer  in  that  line  is  obviously 
limited.  As  it  is,  in  fact,  entrusted  with  the 
business  of  others,  the  nature  of  its  service  is 
that  of  a  deputy  or  susbtitute,  and  the  relations 
existing  between  it  and  its  subscribers  are  closer 
than  those  between  buyer  and  seller.  They  are 
largely  mutual,  and,  in  proportion  as  its  hands 
are  strengthened  by  its  patrons,  it  can  do  more 
and  better  work  for  them.  The  greater  their 
number,  and  the  higher  the  compensation  re- 
ceived, the  more  it  can  extend  and  improve  the 
quality  of  its  information  for  the  benefit  of  all. 

Justice  has  been  defined  as  the  virtue  which 
consists  in  giving  every  one  his  due ;  and  the 
steady  and  substantial  growth  of  "  The  Mercan- 


THE    MERCANTILE    AGENCY   SYSTEM.  129 

tile  Agency"  for  fifty  years  bears  witness  that 
this  must  have  been  the  cardinal  principle  of  its 
proprietors.  It  has  also  demonstrated  to  the 
public  that,  for  the  object  in  view,  no  more  sat- 
isfactory system  has  been,  or  perhaps  can  be  de- 
vised, than  that  by  which  its  operations  are  con- 
ducted. It  has  no  motive  to  injure  or  misrepre- 
sent any  one.  On  the  contrary,  the  best  inter- 
ests of  an  agency  prompt  it  to  get  as  near  the 
truth  as  possible  in  every  report,  because  the  con- 
fidence of  those  upon  whom  its  prosperity  de- 
pends will  surely  be  proportioned  to  the  accu- 
racy of  its  information. 

Objection  has  sometimes  been  made  that  the 
system  tends  to  create  a  sort  of  moneyed  rank, 
or  that  it  practically  discriminates  against  men 
of  small  means,  and  in  favor  of  the  rich.  But 
this  is  not  true.  A  respectable  mercantile 
agency  refuses  to  become  the  arbiter  or  censor  of 
any  man's  affairs.  It  simply  records  what  it 
can  find  and  verify.  It  deals  in  facts,  rather 
than  opinions;  yet  in  its  ratings  and  reports, 
reputation  and  character  must  be  as  carefully 
considered  as  mere  ability  to  pay.  And, 
furthermore,  if  wealth  confers  any  distinction, 


130  GIVING   AND   GETTING   CREDIT. 

it  is  not  in  this  country  hereditary,  and  is  acces- 
sible to  all.  Death  brings  division  of  property, 
and  new  financiers  come  to  the  front. 

Nor  does  the  agency  make  public  its  written 
or  printed  information.  It  is  communicated 
only  to  annual  subscribers,  specifically  for  use 
in  their  own  business,  "as  an  aid  in  determin- 
ing the  propriety  of  giving  credit,"  under  the 
written  pledge  that  it  "  shall  be  strictly  confi- 
dential, and  under  no  circumstances  be  com- 
municated to  others." 

No  intelligent  man  can  expect  another  to  en- 
trust him  with  his  property  without  inquiry  to 
ascertain  if  he  is  worthy  of  such  confidence.  If 
he  is  honest  and  responsible,  he  cheerfully  in- 
vites it.  If  he  objects  to  it,  it  is  a  reasonable 
inference  that  the  result  would  be  unfavorable 
to  himself. 

He  who  asks  for  credit  virtually  challenges 
such  investigation,  and  accords  the  seller  the 
right  to  make  it.  Nor  can  this  right  be  con- 
fined merely  to  the  seller  personally.  Qui  facit 
per  alium  facit  per  se;  he  may  deputize  his 
salesman,  or  his  bookkeeper,  or  he  may  properly 
confide  the  troublesome  and  delicate  service  to 


THE   MERCANTILE   AGENCY   SYSTEM.          131 

an  organization  which  will  perform  it  for  him 
promptly,  and  at  the  least  expense  to  himself. 

Probably  the  greatest  usefulness  of  the  mer- 
cantile-agency system  consists  in  the  protection 
it  gives  against  incompetence  and  dishonesty. 
It  traces  absconding  debtors  wherever  they  may 
locate,  exposes  false  and  fraudulent  representa- 
tions, and  gives  caution  against  the  doubtful. 

If,  for  example,  a  trader  in  New  York  pre- 
meditates a  fraudulent  failure,  he  stretches 
his  credit  limit  with  his  accustomed  houses,  and 
strives,  right  and  left,  to  open  new  accounts. 
Requests  for  reports  at  once  pour  in  upon  the 
leading  agencies,  and  an  extraordinary  number 
of  inquiries  concerning  any  person,  or  firm, 
signifies  either  distrust,  or  exceptional  con- 
ditions of  some  kind,  which  call  for  prompt 
investigation. 

But  the  mercantile  agency  does  far  more  than 
this.  It  places  in  the  merchant's  or  manufac- 
turer's hands  a  complete  list  of  the  solvent  buy- 
ers of  the  country,  states  their  resources,  gives 
their  home  reputation  for  ability,  thrift,  and 
integrity,  and  the  promptness  with  which  they 
meet  their  obligations,  from  the  actual  experi- 


132  GIVING   AKD   GETTING   CREDIT. 

ence  of  those  from  whom  they  buy.  It  is  con- 
stantly on  the  alert  to  discover  and  apprise  its 
patrons  of  changes  which  may  affect  their  in- 
terests, and  it  prevents  delay  in  the  shipment  of 
goods  to  any  part  of  the  country  if  the  purchas- 
ers are  responsible. 

The  agency  system  is  of  vast  benefit  also  to 
buyers  in  all  parts  of  the  land,  for  it  expands 
far  more  than  it  restricts  credit.  It  opens  the 
entire  markets  of  the  country  to  every  substan- 
tial and  upright  dealer,  without  regard  to  the 
locality  of  his  business.  The  books  and  records 
of  the  agency  are  his  best  letters  of  introduction. 
He  need  not  now,  as  formerly,  be  confined  in 
his  purchases  to  a  few  houses  where  he  is  per- 
sonally known.  It  tends  also  to  protect  him 
from  the  injurious  competition  of  irresponsible 
and  unprincipled  traders,  and  in  many  other 
respects  renders  him  essential  service. 

Feeling  that  he  and  his  affairs  are  observed 
and  open  to  the  scrutiny  of  the  business  world, 
the  country  merchant  may  naturally  become 
more  prudent  and  conservative  in  his  dealings. 
It  tends  to  check  extravagance,  restrains  him 
from  doubtful  speculation,  and  promotes  in  him  a 


THE   MERCANTILE   AGENCY    SYSTEM.          133 

finer  sense  of  the  value  of  industry,  and  thrift, 
and  of  character,  for  he  knows  that  the  agency 
mirror  will  reflect  what  he  is.  If  he  finds 
that  his  credit  suffers  from  his  uncertain  hab- 
its, his  lack  of  economy,  or  of  punctuality,  he 
is  driven  to  retrieve  himself,  and,  like  the 
wounded  oyster,  "mend  his  shell  with  pearl." 

The  American  mercantile  agency  system  is 
unique;  nothing  comparable  to  it  exists  else- 
where, but  it  is  a  natural  outgrowth  of  our  pe- 
culiar needs  and  conditions.  The  great  extent 
of  the  Republic ;  its  subdivision  into  numerous 
sovereign  States  with  diverse  laws;  the  freedom 
of  interstate  traffic;  the  rapid  growth  of  the 
country ;  the  energy  and  enterprise  of  the  Amer- 
ican people;  their  cosmopolitan  and  somewhat 
migratory  characteristics;  the  general  use  of 
credit,  and  the  absence  of  that  governmental 
scrutiny  of  individuals  which  exists  in  many 
European  countries, — all  combine  here  to  ren- 
der the  institution  indispensable. 

The  mercantile  agency  of  the  future  will  prob- 
ably be  conducted  upon  substantially  the  same 
methods  as  at  present,  unless  essential  changes 
occur  in  commercial  conditions,  which  cannot 


134  GIVING   AND    GETTING    CKEDIT. 

now  be  foreseen.  It  is,  in  fact,  difficult  to  con- 
ceive of  any  general  plan  for  gathering  and  dis- 
tributing the  required  information,  which  could 
be  substituted  with  advantage  for  the  one  now 
operative.  But  it  is  believed  that  the  institu- 
tion is  progressive,  and  that  it  will  continue  to 
multiply  checks  on  fraud,  and  in  other  respects 
further  promote  the  interests  of  the  mercantile 
community. 

Commerce  goes  hand  in  hand  with  intelli- 
gence. It  pays  the  wages  of  science,  and  is  the 
patron  of  art.  It  is  fruitful  of  ideas,  of  systems, 
of  railways,  ships,  telegraphs,  cities,  machines, 
manufactories,  fabrics,  houses,  comforts,  and 
conveniences.  It  is  the  nation's  life-blood  in 
circulation.  Who  shall  deny  it  the  right  to 
claim  all  facilities  for  the  extension  and  security 
of  its  operations?  Commerce  required  the  mer- 
cantile agency  system  for  its  protection — and  it 
was  created.  It  has  grown  with  the  growth  of 
the  country,  and  so  long  as  the  credit  system 
exists  it  will  remain,  for  confidence  is  the 
foundation  of  credit,  and  knowledge  is  the 
cradle  of  confidence. 

It  has  now  become  interwoven  with  the  trade 


THE  MERCANTILE  AGENCY  SYSTEM.          135 

of  the  country,  and  is  so  generally  leaned  upon, 
that  were  it  to  be,  from  any  cause,  suddenly 
abolished,  or  its  operations  seriously  curtailed, 
uncertainty,  confusion,  and  distrust  would 
come  at  once.  Credits  would  shrink,  and  the 
distribution  of  merchandise  be  restricted. 


CHAPTER  IX. 

CREDIT   GUARANTEE   OR   INDEMNITY   SYSTEMS. 

A  NOVEL  and  interesting  system  for  indem- 
nifying business  men  against  excess  losses  from 
bad  debts  was  put  into  practical  operation,,  about 
six  years  ago,  by  the  United  States  Credit  System 
Company,  whose  headquarters  were  in  Newark, 
N.  J.  Since  then,  several  organizations,  con- 
ducted substantially  upon  the  same  plan,  have 
entered  the  field  as  Credit  Indemnity  or  Guar- 
antee Companies,  some  of  which  are  still  in  ac- 
tive operation. 

Broadly  stated,  the  principle  upon  which  this 
S3Tstem  is  based  is,  that  in  each  line  of  business 
there  is  a  certain  specific  average  of  losses  on 
credit  sales.  Up  to  this  point,  the  insuring 
merchant  or  manufacturer  must  himself  take 
the  risk ;  but  he  may  obtain  a  certificate  of  in- 
surance against  further  losses,  within  certain 
limits,  by  paying  something  like  three  or  four 
136 


GUARANTEE   OR   INDEMNITY.  137 

per  cent  premium  on  whatever  amount  is 
covered  by  his  certificate.  He  is,  however, 
restrained  from  taking  reckless  risks,  by  the 
ratings  and  reports  of  the  leading  mercantile 
agencies,  certain  low  grades  of  credits  being 
exempted  in  the  guarantee. 

The  premium  exacted  has  usually  been  a 
fixed  one,  in  proportion  to  the  amount  of  in- 
surance, the  varying  quantity  being  the  stipu- 
lated percentage  of  loss  which  the  insured  must 
bear  before  his  indemnity  begins.  This  changes 
with  the  nature  and  extent  of  the  business,  it 
being  higher  for  a  small  than  a  large  concern. 

It  is  claimed  that,  while  careful  provision  is 
made  against  fraud,  there  is  no  irksome  espion- 
age upon  the  insured,  nor  is  any  meddlesome 
supervision  or  interference  with  their  business 
necessary.  The  company  is  to  be  notified  at 
once  ot  excess  losses,  and  upon  due  proof  of  the 
same  they  will  be  adjusted,  and  paid  within  a 
reasonable  time. 

The  new  and  ingenious  feature  of  the  plan  lies 
in  the  fact  that  the  interests  of  both  parties  jog 
on  together  until  the  insured  reaches  the  stated 
limit  of  "average  losses."  To  this  point,  the 


138  GIVING  AND  GETTING  CREDIT. 

less  the  loss,  the  better  for  the  merchant,  and  the 
farther  off  the  insurer's  risks.  If  not  reached, 
the  premium  is  all  profit  to  the  insuring  com- 
pany, while  the  merchant  has  had  the  satisfac- 
tion of  feeling  protected  against  disastrous  mer- 
cantile contingencies,  as  his  insurance  policy 
has  protected  him  from  loss  by  a  possible  fire. 

A  company  for  guaranteeing  credits,  which 
operated  on  a  seemingly  more  speculative  and 
hazardous  plan,  was  also  organized  in  New 
York  several  years  ago.  This  was  simply  to 
guarantee  the  payment  of  notes  and  accounts,  on 
such  terms  as  might  be  agreed  upon  in  each 
case.  But  its  offerings  were  chiefly  doubtful 
or  rejected  risks,  and  but  few  which  could  be 
deemed  reasonably  safe.  This  company  was 
unsuccessful,  and  soon  withdrew  from  the  busi- 
ness. 

There  should  be  no  more  difficulty  in  ascer- 
taining the  average  losses  in  each  kind  of  busi- 
ness, through  an  extended  series  of  years,  than 
there  has  been  in  acquiring  a  knowledge  of  the 
averages  upon  which  all  fire,  marine,  life,  and 
accident  insurance  is  based.  And  it  would 
surely  seem  that,  if  equipped  with  the  necessary 


GUARANTEE  OR  INDEMNITY.       139 

data,  a  well-ballasted  company  might  as  safely, 
as  profitably,  and  as  equitably,  insure  against 
credit  losses  as  against  losses  by  fire  or  ship- 
wreck. But  there  are  some  notable  differences 
and  perplexities  to  be  considered. 

A  necessary  condition  for  the  success  and 
permanence  of  any  insurance  company  is  that 
the  premium  paid  for  insurance  shall  be  remun- 
erative. It  is  from  the  premiums  that  the  losses 
must  be  paid,  or  the  business  will  soon  perish. 
Fire,  life,  and  marine  insurance  have  generally 
proved  profitable  to  their  respective  companies 
in  all  parts  of  the  world.  Losses  in  most  kinds 
of  insurance  vary  so  little  from  year  to  year, 
that  an  adequate  premium  for  an  ensuing 
year  might,  with  a  watchful  regard  to  current 
changes,  be  fairly  predicated  upon  the  experi- 
ence of  several  preceding  years. 

Yet  fire  insurance,  for  example,  is  now  so  care- 
fully administered  that  the  data,  from  which  to 
establish  the  general  premium  rates,  is  not  taken 
merely  from  the  experience  of  any  one  company, 
but  from  the  accumulated  and  combined  experi- 
ence of  all.  Still,  even  these  rates  constantly 
fluctuate.  It  will  be  observed,  that  if  a  season's 


140  GIVING    AND   GETTING   CREDIT. 

fires  have  been  large  and  numerous,  and  losses 
unusually  heavy,  premiums  are  advanced  all 
along  the  line. 

But  credit  insurance  is  subject  to  greater  and 
more  frequent  vicissitudes.  The  movement 
of  mercantile  affairs  in  uncertain  cycles  of  ele- 
vation and  depression  depends  upon  many  cir- 
cumstances, which  can  neither  be  foreseen,  nor 
guarded  against,  by  the  credit  insurer.  Panics 
seldom  come  on  schedule  time,  but  often  sud- 
denly, and  when  least  expected;  and  the  losses 
of  a  Credit  Indemnity  Company,  in  a  year  of 
panic  and  liquidation,  may  easily  exceed  the 
losses  and  sweep  away  the  profits  of  several  or- 
dinary years. 

It  is  evident,  therefore,  that  the  premium  de- 
manded by  such  a  company  must  be  such  as 
will  cover  varying  degrees  of  mercantile  pros- 
perity. It  must  be  large  enough  for  the  com- 
pany to  gain  a  reserve  when  trade  prospers  and 
losses  are  few,  so  that  it  may  be  in  a  position  to 
meet  the  exigencies  of  a  crisis  which  is  liable 
to  come  at  any  time,  and  may  not  come  for 
years.  On  the  other  hand,  it  must  not  be  much 
above  the  actual  risk  incurred  by  prudent  and 


GUARANTEE   OB   INDEMNITY.  141 

intelligent  merchants,  or  they  will  decline  to 
insure. 

The  business  of  insuring  credits  could  not  be 
profitable  in  calamitous  times,  if  the  premium 
were  based  on  average  losses.  A  company  in- 
suring credits  upon  this  basis,  during  a  season 
of  panic,  could  only  hope  to  find  compensation 
for  extraordinary  losses  through  a  continuation 
of  business,  at  the  same  premium  rate,  when 
prosperity  returns. 

But  people  insure  against  fire  and  wreck  be- 
cause such  casualties  are  so  largely  due  to  for- 
tuitous circumstances,  which  no  ordinary  exer- 
cise of  wisdom  can  foresee  or  prevent.  The 
credit  losses  of  a  mercantile  concern  depend  less 
upon  mere  chance,  and  it  has  often  been  proved 
possible  for  experience,  skill,  and  prudence  to 
limit  them  to  a  very  low  figure.  It  therefore 
remains  to  be  seen,  whether  the  better  class  of 
merchants  will  continue  to  insure  their  credits 
freely,  at  a  long-range  premium,  when  trade 
thrives  again,  and  losses  are  small. 

It  is  thus  manifest  that  it  can  be  no  easy  mat- 
ter to  determine  upon  an  inflexible  premium 

beforehand,  which  will  be  reasonably  safe  for 
10 


142  GIVING   AND   GETTING   CREDIT. 

the  insuring  company,  and  satisfactory  to  the  in- 
sured ;  because  the  rate  must  come  first,  and  a 
wide  range  of  uncertainties  in  either  direction 
afterward.  The  cost  cannot  be  known,  until  the 
goods  are  sold. 

Yet  withal,  reasons  are  as  plenty  as  Falstaff's 
blackberries,  why  a  company,  which  can  furnish 
absolutely  safe  and  equitable  insurance  against 
credit  losses,  should  receive  welcome  and  sup- 
port, and  become,  in  time,  a  bulwark  of  trade. 
If  such  possibilities  do  not  lie  within  the  scope 
of  the  system  at  present  operative,  or  in  some 
modification  of  it,  it  is  reasonable  to  think  that 
some  other  plan  may  in  time  be  devised,  which 
will  extend  this  valuable  privilege  to  the  busi- 
ness community. 

The  companies  which  have  been  organized 
for  this  purpose  have  shown  commendable 
enterprise,  but  they  have  been  unfortunate  in 
stumbling  upon  hard  and  unfavorable  condi- 
tions so  early  in  their  career.  Yet  the  large 
number  of  substantial  concerns,  in  all  parts 
of  the  country,  which  have  been  and  perhaps 
are  still  their  patrons,  shows  a  willingness  to 
sustain  them,  and  manifests  the  general  de- 


GUARANTEE   OR   INDEMNITY.  143 

sire  for  some  form  of  protection  against  credit 
losses. 

There  are  many  reasons  to  believe  that  Credit 
Insurance  will  receive  a  full  measure  of  public 
confidence  and  support  when,  and  only  when,  it 
has  passed  through  its  experimental  stages,  and 
settled  its  foundations  firmly  upon  broad,  ac- 
curate, prudent,  and  approved  generalizations. 
The  great,  trusted  and  successful  company  of 
the  future  will  be  a  growth  or  an  evolution. 


CHAPTER  X. 

A  UNIFORM   BANKRUPT   LAW. 

IT  is  a  constant  source  of  perplexity  and  loss 
to  American  merchants,  who  give  credit,  that 
while  all  the  people  speak  the  same  language, 
use  the  same  kind  of  money,  obey  the  same 
national  control,  and  trade  freely  throughout 
the  general  domain,  each  State  has  its  own 
special  laws  for  regulating  the  property  rights 
and  duties  of  its  citizens. 

Forty  or  fifty  independent  legislation-mills  in 
the  country  grind  out,  every  winter,  from  five  to 
eight  thousand  laws,  many  of  which  are  incon- 
gruous, unjust,  or  oppressive;  and  there  is  a 
constant  ebb  and  flow  of  enactment  and  repeal, 
bewildering  even  to  a  Philadelphia  lawyer. 
Worse  still:  lobbyists  swarm  at  every  State 
capitol,  and  statutes  are  made  to  order  for  rich 
men's  money,  or  the  votes  of  the  rabble.  Surely, 
no  nation  on  earth  has  greater  need  for  a  uni- 
144 


A   UNIFOKM   BANKRUPT  LAW.  145 

form  system  of  bankruptcy  than  the  United 
States. 

The  Constitution  vests  in  the  general  Govern- 
ment the  power  of  making  such  a  law,  while  it 
forbids  the  States  to  impair  the  obligation  of 
contracts.  And  although,  in  the  absence  of  a 
National  law,  some  of  the  States  have  enacted 
insolvent  laws,  such  statutes  are  incomplete  and 
unsatisfactory. 

The  foundation  doctrine  of  an  insolvent  law 
is,  that  it  extends  only  to  exempt  a  debtor  from 
liability  to  arrest  or  imprisonment  for  debts  pre- 
viously contracted,  on  condition  of  his  giving 
up  all  his  property  for  the  benefit  of  his  credi- 
tors; that  of  a  bankrupt  law,  to  protect  his 
future  acquisitions  from  his  creditors. 

Insolvent  laws  are  therefore  passed  for  the 
benefit  of  debtors,  and  they  bind  only  citizens  of 
the  State  which  enacts  them.  Under  none  of 
them  can  a  debtor  secure  a  release  from  non-resi- 
dent creditors :  few  provide  for  even  a  limited 
discharge,  except  through  the  clemency  of  credi- 
tors, and  they  afford  the  latter  but  scant  protec- 
tion against  fraud  and  chicanery.  All  State 
laws  on  the  subject  are  suspended  when  a  gen- 


146  GIVING   AND   GETTING   CREDIT. 

eral  law  of  bankruptcy  is  in  force,  and  the  fail- 
ure of  Congress,  for  many  years,  to  pass  such  a 
law  is  thought  to  have  been  unfavorable  to  the 
best  interests  of  the  country. 

Congress  passed  the  first  bankruptcy  bill  in 
the  year  1800,  and  repealed  it  in  1803.  Another 
was  enacted  in  1841,  and  repealed  in  1843. 
Both  were  passed  for  the  relief  of  debtors 
who  had  failed  during  the  preceding  commer- 
cial crises.  The  loose  and  burdensome  meas- 
ure of  1867  was  amended  in  1874,  and  repealed 
in  1878.1 

Early  in  the  century,  the  eminent  Chancellor 
Kent,  and  other  lawyers,  were  of  the  opinion  that 
a  law  which  discharged  debts  without  full  pay- 
ment was  demoralizing.  It  was  thought  to  en- 
courage reckless  trading,  speculation,  and  ex- 

1  This  law  of  1867  was  framed  by  Congressman  Jenckes 
of  Rhode  Island.  It  was  an  attempt  to  secure  equity  by 
forbidding  preferences,  and  by  dissolving  all  recent  at- 
tachments upon  the  debtor's  property ;  and  to  relieve 
honest  debtors  by  granting  them  discharges  on  certain 
conditions.  The  amendment  in  1874  rendered  it  diffi- 
cult and  expensive  to  force  a  debtor  into  bankruptcy. 
It  also  enabled  him  more  easily  to  obtain  a  discharge 
by  composition,  which  was  objected  to  as  giving  too 
much  power  to  the  debtor,  and  too  little  to  the  courts. 


A   UNIFORM   BANKRUPT   LAW.  147 

travagance,  and  as  tending  to  diminish  that 
wholesome  horror  of  bankruptcy  which  all  men 
should  feel. 

But  experience,  under  the  vastly  changed  con- 
ditions of  more  recent  times,  teaches  otherwise. 
Officials  familiar  with  the  administration  of  the 
present  English  bankrupt  law  declare  that  it 
tends  to  promote  more  prudent  habits  and 
greater  carefulness,  that  its  operation  gives 
much  satisfaction,  and  shows  a  steady  and  per- 
manent improvement. 

It  is  now  generally  conceded  that  the  material 
advantages  of  a  well-devised  bankrupt  law  far 
outweigh  all  objections  that  can  be  brought 
against  it,  and  that  it  is  also  desirable  on  the 
ground  of  common  humanity. 

During  the  progress  of  the  century,  legal 
severities  toward  the  unfortunate  have  been 
more  and  more  relaxed  or  mitigated.  Judge 
Story  early  called  imprisonment  for  debt  a  meas- 
ure "  disgraceful  even  to  an  enlightened  despot- 
ism," and  it  is  now,  happily,  a  thing  of  the  past. 
But  that  profound  and  accomplished  jurist  also 
declared  that  he  could  recognize  no  distinction 
between  the  injustice  of  imprisoning  the  body 


148  GIVING  AND   GETTING   CREDIT. 

of  an  honest  debtor,  and  of  monopolizing  all  his 
future  earnings. 

The  law  formerly  regarded  the  bankrupt  as  a 
quasi  criminal.  It  now  generally  looks  upon 
him  as  neither  innocent  nor  guilty,  but  as  one 
whose  conduct  requires  examination.  If  it  be 
found  that  his  failure  is  the  result  of  honest 
misfortune,  the  law,  under  every  civilized  flag 
but  our  own,  distributes  his  property  among  his 
creditors,  and  compassionately  grants  him  a  dis- 
charge ;  but  denies  it  to  his  faults. 

If  any  think  a  well-planned  bankrupt  law  to 
be  merely  a  legislative  act  which  enables  a  lot 
of  debtors  to  escape  their  obligations,  they  mis- 
take its  scope  and  spirit.  It  operates  also  to 
frustrate  and  punish  fraud,  and  protect  creditors. 
It  bears  the  same  relation  to  estates  in  liquida- 
tion, because  of  dishonesty  or  failure,  that  pro- 
bate laws  bear  to  the  estates  of  deceased  persons. 

Without  doubt,  the  abuses  practised  under  the 
administration  of  each  of  the  former  bankrupt 
laws  gave  much  cause  for  dissatisfaction ;  and 
there  are  some  who  profess  to  believe  it  impos- 
sible to  pass  a  wise  law,  because  the  old  ones 
were  defective.  But  this  is  to  deny  that  ex- 


A   UNIFORM   BANKRUPT  LAW.  149 

perience  and  intellectual  progress  can  bear 
fruit. 

Our  early  legislators  had,  upon  this  subject, 
but  a  narrow  range  of  precedent  and  practical 
knowledge  from  which  to  draw  conclusions. 
The  nation  has  since  observed  and  cogitated, 
and  now  thinks  itself  qualified  to  frame  a  single 
law,  which  shall  avoid  the  errors  and  embody  the 
wisdom  of  all  the  many  State  and  National  in- 
solvent and  bankruptcy  laws  which  have  pre- 
ceded it. 

That  such  a  measure  has,  in  fact,  been  already 
prepared,  those  familiar  with  the  provisions  of 
the  Torrey  Bill  firmly  believe.  Every  part  of 
this  bill  has  been  long  and  carefully  scrutinized, 
both  by  legal  knowledge  and  mercantile  experi- 
ence. It  has  been  much  amended  and  improved 
from  the  original  draft,  and  is  now  considered 
ripe  for  enactment. 

Congressional  committees  have  warmly  ap- 
proved the  Torrey  Bankruptcy  Bill,  and  urged 
its  passage.  In  response  to  the  popular,  non- 
partisan  and  non-sectional  demand,  it  will  prob- 
ably soon  become  a  law. 

In  June,  1892,  Mr.  Gates,  chairman  of  the 


150  GIVING   AND   GETTING   CREDIT. 

House  Committee  on  the  Judiciary,  submitted 
a  report  on  the  Torrey  Bill,  which  characterized 
it  as  follows : 

"A  summary  of  the  bill  in  five  words:  A 
square  deal  all  around." 

"  A  summary  in  a  paragraph :  a  measure  for 
the  discharge  of  honest  insolvents,  the  diminu- 
tion of  fraud,  the  prompt  and  economical  ad- 
ministration of  bankruptcy  estates,  the  main- 
tenance of  integrity  in  transactions  on  credit, 
and  the  promotion  of  commerce." 

Many  commercial  bodies  have  addressed  Con- 
gress in  advocacy  of  the  Torrey  Bill.  Among 
them  is  the  National  Board  of  Trade,  which, 
at  its  session  in  Louisville  a  few  years  ago, 
adopted  a  memorial  to  Congress,  commending 
its  provisions,  and  requesting  its  passage. 
This  memorial  declared  that,  in  the  opinion 
of  the  Board,  the  Bill,  if  made  a  law,  would 
effect  the  following  results,  viz : — 

1st.  Diminish  the  number  of  failures. 

2d.  Increase  the  amounts  paid  by  insolvent 
estates. 

3d.  Abate  the  class  of  fraudulent  adven- 
turers. 


A   UNIFORM   BANKRUPT   LAW.  151 

4th.  Hold  in  check  that  class  who  make  a 
business  of  failing. 

5th.  Put  an  end  to  the  system  of  legalized 
robbery,  constantly  perpetrated  through  con- 
cealed or  pocket  judgments  founded  in  fraud. 

6th.  Substitute  one  uniform,  equitable  law 
for  the  numerous  incongruous  and  inefficient 
State  insolvency  laws. 

7th.  Provide  a  uniform  collection  law. 

8th.  Restrain  compulsory  processes  against 
honest,  solvent,  but  embarrassed  merchants, 
who,  under  present  conditions,  are  liable  to 
suffer  from  contests  between  creditors  to  secure 
preferences. 

9th.  Repress  commercial  wrongs  not  now 
designated  as  crimes,  but  forbidden  in  the  Tor- 
rey  Bill. 

10th.  In  effect  increase  the  invested  capital 
of  all  dealers  by  giving  more  general  confi- 
dence. 

llth.  Secure  to  honest  unfortunates  a  dis- 
charge from  the  excess  of  their  indebtedness 
over  the  amount  of  their  assets. 

12th.  Check  the  fraudulent  system  of  indi- 
vidual creditors  obtaining  from  bankrupt  debtors 


152  GIVING   AND   GETTING   CREDIT. 

a  larger  percentage  than  others  receive,  as  a 
condition  precedent  to  discharge. 

13th.  Prevent  fraudulent  preferences. 

14th.  Secure  a  prompt  adjustment  of  matters 
in  controversy,  by  arbitration,  compromise,  or 
litigation. 

15th.  Provide  for  holding  creditors' meetings 
at  places  which  will  best  serve  the  convenience 
of  the  greatest  number. 

16th.  Secure  an  equitable  division  of  the  as- 
sets of  insolvents  among  their  creditors,  quickly, 
and  at  a  minimum  cost. 

If  Congress  will  enact  this  or  a  similar  bill, 
and  its  operation  fairly  justifies  the  claims  made 
in  its  behalf,  it  will  prove  a  benefaction  to  the 
commercial  world.  The  wonder  will  then  be 
that,  for  seventeen  years,  we  have  tolerated  the 
inequitable,  confused,  exasperating,  and  unnec- 
essary conditions  which  have  prevailed  in  the 
absence  of  such  a  law. 


CHAPTER  XI. 

PANICS. 

THE  people  have  repeatedly  suffered  during 
the  century  from  visitations  of  what,  for  want 
of  a  more  definite  word,  is  loosely  termed  a 
"panic."  From  the  fact  that  these  calamities 
have  never  been  produced  by  natural  causes, 
such  as  earthquakes,  pestilence,  or  famine, 
they  have  sometimes  been  held  to  signify  some 
radical  defect  in  our  economic  system,  which 
can  only  be  remedied  by  reconstructing  it  upon 
a  different  basis.1 

The  English  economist,  W.  Stanley  Jevons, 

1  A  writer  in  the  English  Journal  of  the  Statistical 
Society  states,  that  in  the  llth,  12th,  and  13th  centuries, 
the  average  was,  in  England,  one  famine  every  fourteen 
years.  Authorities  like  Godwin,  Ricardo,  and  Mill  say, 
that  we  have  succeeded  in  rendering  a  famine  "next  to 
impossible. "  The  masses  no  longer  fear  a  famine,  but 
its  opposite,  a  glut  of  those  commodities  which  they 
themselves  produce  and  most  need,  because  such  a  con- 
dition is  followed  by  distress  among  them. 
153 


154  GIVING   AND   GETTING   CREDIT. 

related  panics  to  the  sun-spots  which,  in  modi- 
fying  the  rainfall,  affect  crops  and  prices.1 
Others  refer  them  to  over-production.  John 
Stuart  Mill  pronounces  this  an  error,  and  says 
panics  are  caused  by  a  contraction  of  credit,  and 
the  remedy  is  a  restoration  of  confidence.  This 
seems  about  like  saying  that  sickness  is  due  to 
ill-health,  and  the  remedy  is  to  get  well.  A 
panic,  and  a  general  loss  of  confidence,  are 
practically  equivalent  and  reciprocal  terms. 
One  is  as  much  the  cause  as  the  effect  of 
the  other,  and  either  produces  contraction  of 
credit. 

England  has  had,  since  1814,  as  many  panics 
as  we ;  and  so  has  France,  except  that  she  es- 
caped that  of  1873,  because  of  the  Franco- Prus- 
sian War.  Sometimes  the  panic  has  appeared 
a  year  or  two  earlier  or  later  in  one  country 


1  In  a  recent  issue  of  Les  Sciences  Populaires,  Professor 
Mascari  assigns  the  latest  maximum  of  sun-spots  to 
August,  1893.  The  last  sun-spot  maximum  preceding 
this  occurred  early  in  1884.  This  record  is  made  up 
by  the  Professor  chiefly  from  his  own  observations  at 
the  observatory  of  Catania.  It  may  interest  some  to  note 
the  coincidence,  that  both  1884  and  1893  were  years  of 
panic. 


PANICS.  155 

than  in  the  others,  but  its  effects  have  been  prac- 
tically simultaneous  in  the  three,  and  to  a 
greater  or  less  extent  throughout  the  commer- 
cial world. 

We  have  been  accustomed  to  think  that,  while 
the  changing  phases  of  foreign  affairs — the 
financial  attitude  of  other  nations,  and  their  de- 
mand for  our  products,  might  bear  close  relation 
to  our  welfare,  they  did  not  cause  our  panics. 
These  have  nearly  always  been  popularly  and 
perhaps  plausibly  attributed  to  domestic  events, 
such  as  unwise  legislation,  tariff  changes,  scant 
crops,  credit  inflation,  or  unsound  currency. 

But,  unless  the  above  facts  are  no  more  than 
coincidences,  they  would  seem  to  indicate  that 
these  sweeping  commercial  revulsions  really 
originate  from  causes  common  to  all  the  panic- 
stricken  nations,  and  that  our  national  occur- 
rences are  but  proximate  or  secondary  causes. 
Perhaps  some  philosopher  will  arise  and  tell  us 
that  a  recondite  tendency  to  panics  is  to  be 
found  in  modern  civilization,  or,  deeper  still,  in 
the  natural  foibles  of  human  nature,  to  be 
developed,  like  great  epidemics,  by  some  un- 
known influence. 


156  GIVING   AND   GETTING  CREDIT. 

It  is  not  difficult  to  see  now,  why  we  have 
been  afflicted  with  a  full  share  of  the  world's 
panics.  The  amazing  progress  of  the  country, 
and  the  nature  of  its  institutions,  have  seemed  to 
render  it  necessary  to  attempt  the  solution  of 
many  pressing  legislative  and  economic  prob- 
lems in  an  experimental  way.  We  have,  there- 
fore, lived,  more  than  the  people  of  any  other 
great  nation,  in  a  constant  state  of  uncertainty 
— not  perhaps  as  to  general  results,  but  in  re- 
spect as  to  what  to-morrow's  legislative  meas- 
ures may  have  in  store  for  us  as  manufacturers 
and  merchants. 

Trade  has  its  natural  laws,  under  which  its 
highways,  methods,  and  usages  are  established 
along  the  line  of  least  resistance.  But  they 
must  be  constantly  readapted  to  changing  con- 
ditions; and  constant  change,  or  apprehen- 
sion of  change,  creates  that  uncertainty  of  the 
future  which  renders  business  speculative, 
hazardous,  and  demoralizing.  Mercantile  in- 
terests generally,  and  the  credit  system  es- 
pecially, demand  a  stable  basis  upon  which 
to  calculate.  Business  men  prefer  to  anchor 
upon  even  tolerable  conditions,  rather  than 


PANICS.  157 

drift    in   shifting  channels,    which   is  always 
dangerous. 

The  panic  of  1814  followed  the  war  with  Eng- 
land in  1812.  The  blockade  of  our  ports  had 
prevented  the  export  of  produce,  and  drained 
away  our  specie.  Peace  came  in  1814,  when 
England  inundated  us  with  her  wares  and  drove 
our  own  manufacturers  and  merchants  out  of 
business.  The  war  debt  created  exceeded  $80,- 
000,000.  Much  paper  money  was  afloat,  and 
the  want  of  a  solvent  currency  was  severely 
felt.  The  banks,  except  in  New  England,  sus- 
pended specie  payments. 

In  1816,  Congress  chartered,  for  twenty  years, 
a  National  Bank,  with  a  capital  of  $35,000,000. 
It  was  located  at  Philadelphia,  but  permission 
was  granted  to  establish  branches  elsewhere, 
under  certain  conditions.  There  were  twenty- 
five  directors,  five  of  whom  were  to  be  chosen 
by  the  President,  and  all  were  made  personally 
liable  for  violations  of  the  charter.  A  vast 
issue  of  paper  money  followed.  In  1818,  the 
bank  had  passed  the  safety  line,  and  was  at 

the  mercy  of  its  creditors.     A  panic  was  pre- 
11 


158  GIVING   AND    GETTING    CREDIT. 

cipitated  upon  the  country,  and  there  was  much 
distress.1 

Liquidation  ceased  in  1819  and  prosperity  re- 
turned. But  we  had  not  learned  how  to  deal 
with  banking  institutions,  and  "  wildcat"  banks 
of  issue  sprang  up  in  various  parts  of  the  coun- 
try, because  they  could  be  organized  with  little 
or  no  tangible  capital,  and  were  subject  to  no 


1  Our  patriotic  forbears  seem  to  have  been  as  much 
befogged  on  the  money  question  as  are  some  of  our  fel- 
low-citizens. Here  are  some  specimen  views : 

"  Do  you  think, "  said  a  delegate  to  Congress  during 
the  Revolutionary  War,  "  that  I  will  consent  to  load  my 
constituents  with  taxes,  when  we  can  send  to  our  printer 
and  get  a  whole  wagon-load  of  money,  one  quire  of 
which  will  pay  for  the  whole?" 

An  address  issued  by  Congress  to  the  States,  in  1779, 
contains  these  words : 

"Let  it  be  remembered  that  paper  money  is  the  only 
kind  of  money  which  cannot  take  unto  itself  wings  and 
fly  away.  It  remains  with  us ;  it  will  not  forsake  us. 
It  is  always  ready  and  at  hand  for  the  purposes  of  com- 
merce, or  taxes,  and  every  industrious  man  can  find  it." 
At  this  time  Congress  had  no  power  to  tax,  and  efforts 
were  made  to  keep  the  paper  currency  from  sinking  in 
value  by  legally  regulating  the  prices  of  commodities. 

Prior  to  these  events,  Adam  Smith,  author  of  the 
famous  "  Wealth  of  Nations, "  had  compared  the  use  of 
gold  and  silver  money  to  a  highway  on  the  ground ; 
that  of  paper  money  to  a  wagon -way  through  the  air. 


PANICS.  159 

effective  supervision  or  control.  There  was,  for 
several  years,  an  abundance  of  currency ;  but  a 
crisis  came  in  1825,  and  again  confusion  and 
distress  prevailed,  although  England  suffered 
still  more  severely.1 

After  recovery,  business  continued  active 
and  money  plentiful  until,  in  1831,  there  were 
some  considerable  embarrassments,  due  to  ex- 
panded credit,  and  other  circumstances. 

In  1833,  President  Jackson,  who  opposed  the 
Bank  of  the  United  States,  ordered  that  the  pub- 
lic deposits  held  by  it,  amounting  to  some  $37, 
000,000,  be  transferred  to  eighty  selected  local 
banks  in  various  parts  of  the  country.  These 
banks  soon  came  to  regard  this  money  almost 
as  a  permanent  deposit,  and,  upon  the  strength 
of  it,  poured  forth  volumes  of  paper  currency. 

It  was  a  period  of  swift  and  splendid  national 
development.  The  lakes  and  rivers  of  the  coun- 
try teemed  with  steamboats.  Stephenson's  loco- 


1  The  bank  charters  of  those  days  were  largely  "  based 
upon  ignorance,  intrigue,  favoritism,  or  corruption." 
James  Buchanan  thus  characterized  the  Bank  of  the 
United  States:  "It  has  defied  Congress,  violated  the 
laws,  and  is  mixed  up  in  politics." 


160  GIVING   AND    GETTING    CREDIT. 

motive,  "The  Rocket,"  had  firmly  established 
the  practicability  of  steam  travel  and  transpor- 
tation by  rail,  and  the  eleven  hundred  miles  of 
railway  in  operation  in  1835  were  destined  to 
be  doubled,  each  five  years,  until  1860.  Coal 
displaced  wood  as  fuel.  New  towns  and  cities 
marked  the  outburst  of  progress.  Chicago, 
which  was  only  a  frontier  post  in  1832,  became 
in  six  years  a  flourishing  town,  having  eight 
steamers  connecting  it  with  Buffalo. 

Under  these  conditions  credit  expanded  pro- 
digiously, and  a  frenzy  of  speculation  fell  upon 
the  people.  There  were  great  land  "  booms"  in 
Maine  and  throughout  the  West,  and  the  ster- 
ling simplicities  of  life  were  forgotten  in  dreams 
of  quickly  acquired  wealth  without  labor.  Im- 
ports, in  1836,  exceeded  exports  by  more  than 
fifty  million  dollars,  which  called  for  specie. 
The  day  of  reckoning  was  at  hand. 

In  1835,  the  President  announced  to  Congress 
that  the  public  debt  was  extinguished,  and  urged 
legislation  in  regard  to  the  disposition  of  the 
surplus.  A  law  was  therefore  passed  in  1836 
withdrawing  the  scattered  millions  of  specie 
from  the  banks,  for  the  purpose  of  distributing 


PANICS.  161 

it  among  the  States.  Sales  of  the  public  lands 
had  increased  from  about  $3,000,000  in  1831,  to 
$25,000,000  in  1836,  and  the  President,  who 
seemed  resolved  to  smash  things  and  leave  the 
repairs  to  his  successor,  now  ordered  that  hence- 
forth only  coin  should  be  received  for  them. 

People  at  once  awoke  to  realize  that  they  had 
"  been  a-riding  in  a  balloon,  and  the  gas  was 
out."  A  heavy  decline  in  the  price  of  cotton 
and  other  exports  increased  the  troubles.  The 
Bank  of  the  United  States,  and  most  other 
banks,  suspended.  Nearly  everybody  failed. 
Notes  were  worthless,  loans  unpaid,  confidence 
utterly  destroyed.  Some  States  repudiated 
their  obligations,  and  the  General  Government 
was  in  peril  of  bankruptcy.  It  was  a  dismal 
time.  Stay  laws  were  hastily  passed,  and 
American  credit  received  a  shock  from  which 
it  did  not  fully  recover  for  many  years.1 

The  panic  of  1857  burst  upon  the  country  like 
a  tempest  from  a  clear  sky.  California  had 
poured  into  the  lap  of  the  world  over  four  hun- 
dred millions  of  gold  during  the  seven  preced- 

1  It  was  estimated  that  the  panic  of  1837-39  caused 
33,000  failures,  involving  a  loss  of  $450,000,000. 


162  GIVING   AND    GETTING   CREDIT. 

ing  years,  and  her  yield  in  1857  was  fifty-five 
millions.  Immigrants  had  been  coming  to  our 
shores  at  the  rate  of  a  thousand  or  more  a  day, 
and,  avoiding  slave  soil,  had  swarmed  upon  our 
Western  lands. 

The  harvest  of  the  preceding  year  was  one 
of  the  finest  ever  garnered.  Our  carrying  trade 
was  increasing;  factories  were  nowhere  idle. 
There  was  no  governmental  exigency,  no  popu- 
lar discontent.  The  telegraph  had  been  brought 
into  general  use,  and  a  great  mileage  of  railway 
had  been  recently  completed,  or  was  under  con- 
struction. The  conditions  of  life  were  changing 
with  bewildering  rapidity.  Prices  were  high 
and  advancing,  and  there  was  a  prodigious  ex- 
pansion of  credit. 

But  with  the  coming  of  summer  there  was  a 
vague  uneasiness  in  the  air,  which  soon  grew 
into  distrustful  apprehension.  Banks  carefully 
scrutinized  their  collateral,  and  called  in  loans, 
and  prudent  merchants  set  their  houses  in  order. 

On  the  24th  of  August  the  Ohio  Life  Insur- 
ance and  Trust  Company  failed.  This  was  a 
large  institution,  located  by  its  charter  in  Cin- 
cinnati, but  its  chief  business  was  banking  in 


PANICS.  163 

New  York,  where  its  cashier  resided.  He  had 
borrowed  several  millions  on  call,  upon  securities 
which  could  not  be  turned  into  cash  when  de- 
mand was  made  for  the  return  of  the  loans. 

This  event  was  the  panic  signal,  and  the  pub- 
lic confidence  at  once  gave  way  to  fright. 
Within  a  few  days,  prices  fell  fifty  per  cent 
upon  the  Stock  Exchange.  Everybody  wanted 
money,  but  it  was  impossible  to  realize  upon  any 
kind  of  property,  except  at  a  disastrous  sacri- 
fice. Many  houses  failed,  and  within  a  few 
weeks  the  banks  of  New  York  and  other  cities 
suspended  payments. 

The  effects  of  the  panic  of  1857  were  widely 
and  profoundly  felt,  but  recovery  was  compara- 
tively rapid.  It  was  generally  thought  to  have 
been  caused  by  the  inflation  of  credit,  over-trad- 
ing, and  speculation. 

The  great  Civil  War  began  with  the  sur- 
render of  Fort  Sumter,  April  14th,  1861. 
Specie  payments  were  generally  suspended 
throughout  the  United  States  on  the  30th  of 
December,  1861,  because  of  the  issue  of  paper 
currency  by  the  Government  for  war  purposes. 
Commercial  dealings  with  the  Southern  States 


164  GIVING  AND   GETTING   CREDIT. 

were  entirely  cut  off.  The  surrender  of  Lee  to 
Grant,  April  9th,  1865,  practically  ended  the 
war,  and  the  issue  of  greenbacks  ceased. 

The  country  now  resolutely  set  itself  to  the 
task  of  grappling  with  its  huge  war  debt,  and 
before  all  the  soldiers  had  been  sent  home  it  was 
reduced  $30,000,000.  As  might  naturally  be 
expected,  there  were  some  financial  and  busi- 
ness disturbances  at  this  juncture.1 

In  the  spring  of  1866,  Overend,  Gurney  &  Co. , 
one  of  the  largest  and  most  influential  firms  in 
Europe,  suspended  payment.  This  house  stood 
next  to  the  Bank  of  England  as  a  tower  of  finan- 
cial strength,  and  was  known  all  over  the  world. 
This,  and  other  events,  produced  stagnation  and 
distress  for  a  time,  but  its  effects  were  not  very 
seriously  or  extensively  felt  in  this  country. 

Some  years  of  rapid   material   progress  fol- 


1  The  national  debt  was,  in  1857,  twenty-eight  millions ; 
in  1860,  sixty-five  millions  ;  in  1861,  ninety-one  millions  ; 
in  1862,  five  hundred  and  fourteen  millions ;  in  1863, 
eleven  hundred  and  twenty  millions  ;  in  1864,  eighteen 
hundred  and  sixteen  millions.  In  August,  1865,  it 
reached  twenty-eight  hundred  and  forty-five  millions, 
which  was  the  maximum.  Specie  payments  were  not 
resumed  until  January  1,  1879. 


PANICS.  165 

lowed  this  epoch,  notwithstanding  that  the 
people  insisted  upon  paying  the  National  debt 
as  fast  as  possible.  It  seemed  that,  in  passing 
through  the  terrible  war,  the  Nation  awoke  for 
the  first  time  to  a  full  realizing  sense  of  its 
greatness,  its  strength,  and  its  resources,  and  all 
the  arts  of  peace  now  sprang  forward  with 
amazing  elasticity.  Prosperity  was  general,  at 
least  throughout  the  Northern  States.  Produc- 
tive and  transportation  facilities  were  greatly 
increased.  The  country  was  busy  with  its  in- 
dustries. 

The  period  around  1870  is  remarkable  for  its 
railway  construction,  which  opened  up  large 
areas  of  new  territory  to  settlement.1  But 
much  capital  was  absorbed  in  these  enterprises, 
many  of  which  proved  unproductive.  Money 
grew  scarce,  interest  high,  and  times  hard.  The 
collapse  of  the  "  building  mania"  in  Vienna,  in 
1873,  was  followed  by  financial  troubles  through- 
out Europe. 

The  American  crisis  came,  in  September  of 
this  "bad  year,"  with  the  failure  of  Jay  Cooke 

'4,615  miles  of  railway  were  built  in  1869;  6,070  in 
1870,  and  7,379  miles  in  1871. 


166  GIVING   AND   GETTING   CREDIT. 

&  Co.  The  head  of  this  house  had  been  the 
financial  agent  of  the  Government  during  the 
war,  for  the  sale  of  its  bonds,  and  more  than 
$2,000,000,000  had  passed  through  his  hands. 
He  afterward  became  financial  agent  for  the 
Northern  Pacific  Railway,  and  his  failure  fol- 
lowed this  connection. 

The  country  was  flooded  with  securities,  and 
other  failures  came  swiftly.  Eighty-three  rail- 
way companies  suspended  payment,  and  the 
New  York  Stock  Exchange  found  it  expedient 
to  close  its  doors  from  the  18th  to  the  30th  of 
September. 

All  industries  were  affected.  Commodities 
declined  in  price;  factories  in  all  parts  of  the 
country  were  closed  down,  because  their  prod- 
ucts were  unsalable,  and  great  numbers  of  peo- 
ple were  thrown  out  of  employment. 

Several  grim  and  weary  years  elapsed  before 
this  industrial  paralysis  passed  away.  In  fact, 
many  believe  this  panic  to  have  been  more 
grievous  than  any  which  preceded  it,  because 
its  results  were  of  such  long  duration. 

Enormous  speculative  enterprises  came  again 
with  the  advent  of  prosperity,  and  reached  their 


PANICS.  167 

climax  in  1880-81,  when  a  movement  toward 
lower  prices  for  railway  securities  set  in,  owing 
to  competition  in  rates,  and  stock  manipulations. 
In  1883,  warehouses  were  crowded  with  goods, 
gold  was  being  drawn  away  from  the  country, 
and  failures  were  somewhat  numerous.1 

In  May,  1884,  the  New  York  house  of  Grant 
&  Ward  failed  disastrously,  with  liabilities  of 
$17,000,000,  and  several  New  York  city  banks 
suspended.  Other  failures  followed,  and  for  a 
time  intense  anxiety  prevailed.  But  the  city 
banks  formed  a  syndicate  for  mutual  protection 
and  support,  and  the  general  distrust  soon  died 
away.  This  crisis  was  more  severe  in  New 
York  than  elsewhere.  It  may,  in  fact,  be  called 
a  panic  in  securities,  which  affected  speculators 
and  financiers  more  than  those  in  trade. 

1  Railway  construction  in  1880  reached  7,174  miles; 
in  1881,  11,142  miles;  in  1882,  10,821  miles;  in  1883, 
6, 400  miles, 


CHAPTER  XII. 

THE   PANIC   OF   1893. 

THE  most  severe  aDd  extensive  panic,  in 
many  respects,  which  has  ever  afflicted  this 
nation,  was  that  of  1893.  No  section  of  the 
country  has  escaped  its  ravages,  nor  any  indus- 
try its  blighting  effects,  and  the  spell  of  its  in- 
fluence has  not  yet  passed  away.  It  cannot 
fairly  be  imputed  to  over-trading  and  specula- 
tion, and  it  sprang  neither  from  too  much  nor 
too  little  currency  in  circulation.  It  will,  how- 
ever, pass  into  financial  history  as  a  "  currency 
panic,"  from  the  fact  that  its  proximate  cause 
was  distrust  of  the  stability  of  the  currency, 
which  produced  a  demand  for  our  gold,  and 
caused  a  general  contraction  of  credit. 

But  numerous  events,  here  and  elsewhere, 
have  certainly  assisted,  more  or  less  directly,  to 
pave  the  way  for,  and  intensify,  this  great  crisis. 
Among  these  may  be  noted  the  depreciation  of 
silver  throughout  the  world,  and  the  attendant 
decline  in  the  prices  of  staple  products,  the  bank- 
168 


THE    PANIC    OF    1893.  169 

ruptcy  of  some  foreign  nations,  and  the  in- 
creased financial  difficulties  of  others,  the  scan- 
dalous failure  of  the  Panama  Canal  project,  the 
collapse  of  the  house  of  Baring  Brothers  &  Co., 
the  Australian  bank  failures,  the  suspension  of 
silver  coinage  in  India,  our  own  tariff  uncer- 
tainties, and.  the  condition  of  the  public  Treasury. 
The  five  years  from  1888  to  1892,  inclusive, 
comprised  a  period  of  fair  prosperity  in  the 
United  States.  Crops  averaged  satisfactorily, 
the  volume  of  business  was  large,  and  labor  was 
well  employed.  But  speculation,  as  a  rule,  was 
only  moderate  on  the  exchanges,  there  was  a 
constant  decline  in  the  prices  of  commodities, 
and  competition  was  excessively  sharp  in  all 
lines  of  business.  It  was  a  period  of  severe 
trial  for  small  capitalists,  and  mercantile  fail- 
ures were  numerous.1 

1  Commercial  Failures.  Liabilities. 

1888 10,679 $123,829,973 

1889 10,882 148,784,337 

1890 10,907 189,856,964 

1891 12,273 189,868,638 

1892 10.344 114,044,167 

1893 15,242 346,779,889 

1894 13,885 172,992,856 

—Dun's  Review. 


170  GIVING   AND    GETTING   CKEDIT. 

One  of  the  most  important  economic  questions 
of  modern  times  relates  to  the  circulating  me- 
dium, or  currency. 

With  the  progress  of  civilization,  the  vastly 
increased  production  of  commodities,  the  quick- 
ened intercourse  between  nations,  and  the  mul- 
tiplied appliances  of  credit,  there  has  come  also 
a  monetary  evolution.  Among  barbarous  peo- 
ple, wampum  and  cowry  shells  serve  as  a 
medium  of  exchange;  but  the  tendency  is,  as 
wealth  and  knowledge  increase,  to  adopt  a 
more  substantial,  convenient,  and  valuable 
form  of  money.  For  many  centuries,  there- 
fore, the  more  enlightened  races  have  used  gold 
and  silver. 

Owing,  however,  to  the  constantly  increasing 
difficulty  of  keeping  these  two  metals  at  a  parity 
of  value,  or  from  "parting  company"  in  their 
relative  values,  and  the  fact  that  payments  will 
always  be  made  in  the  least  valuable  currency 
— in  virtue  of  the  law  that  "bad  money  drives 
out  good  money,"  the  most  important  commer- 
cial countries  have,  one  after  another,  closed 
their  mints  to  silver,  and  adopted  a  gold  stan- 
dard. The  result  has  been  that  the  annually 


THE   PANIC   OF    1893.  171 

increasing  surplus  of  silver  has  "glutted  and 
cloyed  all  markets."  * 

This  mighty  measure  of  alleged  contraction 
has  not  been  accomplished  without  much  oppo- 
sition. It  is  stoutly  maintained  that  money 
owners,  and  creditor  nations  like  England,  have 
been  benefited,  while  agricultural,  industrial, 
and  commercial  interests  throughout  the  world 
have  correspondingly  suffered. 

It  has  been  followed  by  a  great  reduction  in 
nominal  values,  by  frequent  trade  depressions 
and  financial  revulsions,  and  by  the  bankruptcy 
of  several  debtor  nations. 

As  the  United  States  is  the  leading  silver-pro- 
ducing country  of  the  world,  there  has  naturally 
been  a  strong  and  widespread  feeling  averse  to 
the  demonetization  of  the  white  metal  by  our 
Government,  and  the  policy  pursued  for  many 
years  was  a  waiting  one.  In  1873,  however, 
the  Government  ceased  to  coin  silver  on  private 


1  This  would  probably  have  occurred  long  ago  but  for 
the  fact  that  the  populous  East  has  absorbed  such  pro- 
digious quantities  of  silver  from  the  Western  nations. 
Humboldt  observes  that  silver  has  always  moved  in  a 
direction  opposite  to  the  movement  of  civilization. 


172  GIVING  AND   GETTING   CREDIT. 

account,  and  made  preparation  to  return  to  a 
gold  standard,  thus  practically  demonetizing  sil- 
ver. But  in  1878  the  passage  of  the  Bland  Bill 
once  more  made  silver  a  legal  tender,  and  re- 
established the  double,  or  bimetallic  standard.1 
But  the  friends  of  silver  became  dissatisfied 
with  this  measure.  It  did  not  go  far  enough. 
New  mines  of  the  metal,  and  new  and  improved 
processes  for  its  extraction,  were  being  constant- 
ly discovered  and  developed,  and  its  production 
correspondingly  waxed  in  quantity,  while  it 
waned  in  Value,  as  compared  with  gold. 

1  The  Bland,  or  Bland-Allison  Bill  imposed  upon  the 
Secretary  of  the  Treasury  the  duty  of  purchasing  silver 
bullion  and  coining  at  least  two  million  dollars  every 
month,  each  to  weigh  412£  grains,  the  same  to  be  legal 
tender.  This  bill  passed  the  Senate  by  a  vote  of  48  to 
21.  It  became  a  law  over  the  President's  veto. 

The  bill  had  the  support  of  both  Senators  from  Penn- 
sylvania, Ohio,  Indiana,  Illinois,  Wisconsin,  Nebraska, 
and  Minnesota.  Of  those  opposed,  seven  were  Demo- 
crats and  fourteen  Republicans.  Among  the  Democrats 
were  Bayard  of  Delaware,  Kernan  of  New  York,  Whyte 
of  Maryland,  and  McPherson  of  New  Jersey.  Among 
the  Republicans  were  James  G.  Blaine  and  Roscoe 
Conkling,  Morrill  and  Edmunds,  of  Vermont,  and  both 
Republican  Senators  from  Massachusetts,  New  Hamp- 
shire, and  Rhode  Island.  One  California  senator  voted 
against  the  bill,  the  other  in  favor  of  it. 


THE   PANIC   OF   1893.  173 

The  Government  was  pledged  to  maintain 
parity  between  its  coinage  of  both  metals,  and 
additional  pressure  was  brought  to  bear  that, 
as  the  mint  was  open  to  the  free  coinage  of  gold, 
so  also  it  should  be  opened  to  the  free  coinage  of 
silver.  Happily,  wiser  counsels  prevailed,  and 
the  country  escaped  the  task  of  carrying  the  sil- 
ver of  the  world — a  burden  too  heavy  for  the 
shoulders  of  any  single  nation. 

It  was  at  length  proposed,  as  an  alternative — 
which  the  free-coinage  advocates  hoped  would 
be  but  temporary — that  the  Government  should 
purchase  silver  bullion,  and  hold  it  as  a  basis  for 
the  issue  of  paper  currency.  This  project  was 
rendered  more  plausible  by  the  great  reduction 
in  the  National  debt,  and  the  gradual  retire- 
ment of  the  bonds  which  serve  as  a  basis  and 
security  for  the  currency  issues  of  the  Na- 
tional banks.1 

There  was  much  opposition,  but  in  the  sum- 
mer of  1890,  under  the  exigencies  of  party  poli- 

1  From  July  1st,  1884,  to  July  1st,  1893,  the  National 
debt  was  reduced  586  millions  of  dollars.  (The  Director 
of  the  United  States  Mint  reports  the  silver  money  of  the 
world  as  $3,820,571,346  ;  the  gold  money  as  $3,727,018,- 
869.) 


174  GIVING   AND   GETTING   CREDIT. 

tics,  the  Sherman  Bill  became  a  law.  This  en- 
actment directed  the  Secretary  of  the  Treasury 
to  purchase  each  month  4,500,000  ounces  of 
silver  bullion,  and  to  issue  against  it  legal- 
tender  notes,  payable  "in  coin." 

This  measure  is  held  by  many  as  immediately 
responsible  for  the  panic  of  1893.  It  is  alleged 
to  have  impaired  confidence,at  home  and  abroad, 
in  the  stability  and  soundness  of  our  currency, 
incited  the  withdrawal  and  prevented  the  inflow 
of  foreign  capital,  plunged  the  nation  into  un- 
certainty and  apprehension  of  the  future, 
checked  enterprise  and  investment,  and  brought 
paralysis  upon  all  our  industries.1 

The  early  effect  of  the  Sherman  law  was  ap- 
parently to  impart  a  degree  of  buoyancy  to  busi- 
ness and  advance  the  price  of  securities,  al- 
though the  latter  was  in  part,  if  not  chiefly,  due 
to  large  railway  earnings  and  easy  money.  It 
was  generally  believed  that  this  silver  legis- 
lation would  enhance  nominal  values  through 

'  The  total  value  of  all  the  silver  purchased  by  the 
Government  under  both  the  Bland  and  Sherman  laws  is 
but  a  fraction  of  the  loss  which  they  are  believed  to 
have  caused ;  a  striking  commentary  on  the  worth  of 
confidence  and  credit. 


THE    PANIC    OF    1893.  175 

inflation  of  the  currency.  Our  harvests  in  1890 
were  disappointing,  and  in  the  fall  months  came 
shrinkage  of  prices  and  depression.1 

The  j'ear  1889  had  been  one  of  the  most  flour- 
ishing years  in  the  commercial  history  of  Great 
Britain.  Good  things  were  going  in  various 
parts  of  the  globe,  and  "John  Bull,"  with  his 
jingling  gold,  had  secured  a  full  share  of  them. 

But  along  in  the  autumn  of  1890  it  suddenly 
transpired  that  the  great  London  house  of  Bar- 
ing Brothers  and  Co.  must  fail  disastrously, 
unless  it  could  at  once  receive  material  aid.  Its 
inability  to  meet  its  obligations,  amounting  to 
upward  of  a  hundred  and  forty  million  dollars, 
was  chiefly  owing  to  investments  in  the  Argen- 
tine Republic,  which  had  been  widely  bulletined 
as  "the  finest  undeveloped  country  in  the 
world." 

In  this  emergency,  Mr.  William  Lidderdale, 
Governor  of  the  Bank  of  England,  secured  from 
a  syndicate  of  great  London  houses  a  guarantee 

1  Many  large  industrial  corporations  were  organized 
during  the  year  1890.  Notably  the  H.  B.  Claflin  Co. , 
J.  P.  Coats'  Thread  Works,  American  Tobacco  Co., 
Proctor  &  Gamble  Co. ,  etc.  The  McKinley  Tariff  Bill 
went  into  operation  on  the  6th  of  October. 


176  GIVING   AND   GETTING   CREDIT. 

of  protection  against  loss,  to  the  extent  of  four 
million  pounds  sterling,  if  it  would  undertake 
to  liquidate  the  Barings'  estate,  and,  from  the 
British  Government,  authority  to  issue  seven 
million  pounds  sterling  of  notes  to  facilitate  the 
matter.  The  Bank  therefore  assumed,  on  the 
15th  of  September,  the  task  of  meeting  the  Bar- 
ings' engagements,  to  the  amount  of  twenty- 
eight  million  five  hundred  thousand  pounds 
sterling.  It  was  said  that  this  action  prevented 
the  culmination  of  what  "would  have  proved 
the  most  terrible  panic  recorded  in  history1. 

The  crisis  was  averted,  but  the  business  world 
was  stirred  to  its  depths,  and  general  confidence 
was  but  slowly  restored.  What  English  writ- 
ers described  as  a  "  semi-panic"  existed  for  many 

1  In  recognition  of  his  services  at  this  juncture,  Mr. 
Lidderdale  received  the  thanks  of  his  Government,  and 
the  freedom  of  the  city  of  London.  The  successful 
liquidation  of  the  Barings'  Estate  has  since  fully 
justified  the  wisdom  of  his  course.  The  paper  signed  by 
the  parties  to  this  great  transaction  is  interesting  as  a 
model  of  brevity  and  simplicity  ;  it  was  as  follows  : 

"In  consideration  of  advances  which  the  Bank  of 
England  has  agreed  to  make  to  Baring  Brothers  &  Co. , 
to  enable  them  to  discharge  at  maturity  their  liabilities 
existing  on  the  night  of  November  15th,  we,  the  under- 
signed, hereby  agree,  each  individual,  firm,  or  company 


THE   PANIC   OF   1893.  177 

months  in  London,  and  this,  together  with  de- 
bates in  Congress  upon  the  silver  question, 
caused  foreign  investors  to  return  to  us  large 
quantities  of  securities  which,  under  our  low 
bank  reserves  and  money  pressure,  fell  heavily. 
The  North  River  Bank,  of  New  York  city,  went 
into  the  hands  of  a  receiver,  and  there  were 
numerous  failures;  but  the  manufacturing  and 
mercantile  interests  of  the  country  were  not  so 
much  disturbed  as  to  excite  general  apprehen- 
sion. 

Bank  statements,  in  1891,  revealed  a  consider- 
ably improved  condition  of  affairs.  Bountiful 
harvests,  in  face  of  scant  crops  in  other  coun- 
tries, helped  greatly  to  restore  confidence  and 
advance  prices,  despite  the  possibilities  of  silver 

for  himself,  or  themselves  alone,  and  to  the  amount  set 
opposite  his  or  their  names  respectively,  to  make  good 
any  loss,  whenever  the  Bank  of  England  shall  determine 
that  the  final  liquidation  of  the  liabilities  of  Baring 
Brothers  &  Co.  has  been  completed,  so  far  as  in  the 
opinion  of  the  Governors  is  practicable.  All  the 
guarantors  shall  contribute  ratably,  and  no  one  in- 
dividual, firm,  or  company  shall  be  called  on  for  his  or 
their  contribution  without  a  like  call  being  made  on  the 
others.  The  maximum  period  over  which  such  liquida- 
tion may  extend  is  three  years,  commencing  Novem- 
ber 15th. 


178  GIVING   AND    GETTING    CREDIT. 

legislation.  A  still  larger  volume  of  business 
was  transacted  in  1892,  and  failures  were  less 
numerous  and  important  than  in  the  year  pre- 
ceding. Bank  clearances  exceeded  those  of 
1891  by  nearly  ten  per  cent.  But  crops,  and 
especially  that  of  cotton,  were  short,  and  the 
fact  was  reflected  in  railway  earnings,  and  in  ex- 
ports. There  was  increasing  agitation  of  the 
silver  question,  a  growing  disposition  abroad  to 
drop  American  securities,  and  an  alarming  out- 
flow of  gold. 

The  year  1893  opened  with  gray  skies.  Prices 
of  everything  were  low  and  falling,  and  though 
trade  continued  fairly  active,  there  was  little 
sale  for  commercial  paper.  During  the  first  two 
months  of  the  year  our  exports  exceeded  im- 
ports by  thirty- six  million  dollars,  yet  gold  was 
rapidly  leaving  the  country,  and  the  Treasury 
reserve  as  steadily  declining — a  fact  which 
caused  much  anxiety.  Failures  during  the  first 
quarter  were  more  numerous  than  for  the  same 
period  in  many  preceding  years. 

Large  amounts  of  capital  had,  year  after  year, 
been  sent  from  England  to  the  banks  in  Austra- 
lia for  investment.  Most  of  these  banks  had 


THE   PANIC   OF   1893.  179 

branches  throughout  the  country,  a  dozen  some- 
times existing  in  a  locality  which  could  not 
offer  legitimate  business  enough  to  support 
even  one.  There  was  much  competition  be- 
tween them,  and  as  English  money  was  plen- 
tiful, it  easily  found  its  way  into  all  sorts  of 
speculative  enterprises,  such  as  mines,  railway 
and  irrigation  companies,  sheep  and  ostrich 
farms,  etc. 

This  bubble  was  pricked  early  in  1893,  when, 
from  January  15th  to  May  15th,  fourteen  banks 
failed,  with  liabilities  of  nearly  $500,000,000. 
The  event  did  not  create  a  notable  panic  in  Lon- 
don, but  it  was  another  severe  shock  to  confi- 
dence, and  it  made  money  more  stringent.  The 
effect  upon  trade,  on  both  sides  of  the  Atlantic, 
was  depressing. 

As  the  popular  anxiety  and  uncertainty  con- 
tinued to  increase,  President  Cleveland  an- 
nounced, on  the  20th  of  April,  that  he  had  deter- 
mined "  to  preserve  the  parity  between  gold  and 
silver,  and  between  all  obligations  of  the  Govern- 
ment." On  the  sixth  day  of  June,  he  declared 
that  "Congress  must  deal  with  the  currency 
question,  the  condition  of  which  is  the  only 


180  GIVING  AND   GETTING   CREDIT. 

menace  to  the  country's  welfare  and  pros- 
perity." ' 

By  June  there  were  runs  upon  banks  in  vari- 
ous parts  of  the  country,  and  an  alarming  num- 
ber of  failures.  Prices  continued  to  droop  upon 
the  stagnant  exchanges,  and  there  soon  came 
an  embarrassing  scarcity  of  currency.  People 
were  hoarding  it.  The  banks  of  New  York  city 
rallied  for  mutual  support,  and  authorized  the 
issue  of  clearing-house  certificates.  The  same 
thing  was  done  in  Philadelphia.  It  proved  a 
helpful  measure. 

On  the  27th  of  June,  it  was  announced  that 
the  Government  of  India  had  suspended  free 
silver  coinage,  and  determined  upon  a  gold 
standard.  There  was  an  instant  fall  in  the  price 
of  silver  all  over  the  world.  Three  days  later, 
the  President  convened  Congress,  in  extra  ses- 
sion, for  the  7th  of  August. 

1  The  total  net  gold  exports,  during  the  first  six 
months  of  1893,  were  $61,958,895,  as  follows  : 

January $12,213,553 

February 12,988,068 

March 1,504,991 

April 18,344, 979 

May 15,205,760 

June..  1,701,544 


THE   PANIC   OF   1893.  181 

Confidence  was  now  so  badly  wilted  that  its 
revival  seemed  almost  hopeless.  The  number 
of  banks  which  suspended  during  July  and 
August  was  unprecedented  in  the  history  of  the 
country,  and  numerous  railway  companies,  and 
other  large  corporations,  became  bankrupt.  A 
large  proportion  of  the  manufacturing  concerns 
of  the  country  closed  down,  or  curtailed  their 
hours  of  labor.  Great  numbers  of  people  were 
thrown  out  of  employment,  and  there  was  wide- 
spread distress. 

Congress  met  on  the  7th  of  August,  and  all 
eyes  in  the  land  were  eagerly  turned  towards 
Washington.  On  the  28th  of  August,  the 
House  voted  to  repeal  the  Sherman  law  by  a 
majority  of  131,  and  there  was  an  instant  re- 
bound of  hope  and  confidence. 

But  repeal  was  fiercely  resisted  by  a  power- 
ful and  adroit  faction  in  the  Senate,  and  for  two 
months  that  august  body  debated,  and  "pre- 
served its  traditions,"  while  industry  lan- 
guished, and  the  people  suffered. 

At  length  a  bill  passed  both  houses  of  Con- 
gress, and  became  a  law  on  the  first  day  of 
November,  1893,  which  provides,  not  for  the 


182  GIVING   AND   GETTING    CREDIT. 

demonetization  of  silver,  but  for  the  repeal  of  so 
much  of  the  Sherman  Act  as  required  the  pur- 
chase of  silver  bullion  by  the  Government. 

It  was  hoped  and  expected  that  a  revival  of 
business  would  follow  this  legislation,  but  it  had 
less  effect  than  was  anticipated.  The  silver 
market  in  Europe  responded  but  slightly. 
Shipments  of  gold  continued.  There  was  no 
maintained  advance  in  the  price  of  securities  or 
commodities.  Confidence  did  not  return;  the 
waters  had  been  too  deeply  troubled. 

There  were  fewer  mercantile  failures  during 
1893  than  might  naturally  have  been  expected 
under  the  conditions  which  prevailed,  although 
the  proportion  of  those  failing  in  good  credit 
is  given  as  fully  four  times  that  in  preceding 
normal  years.  The  manner  in  which  manu- 
facturers, and  merchants  generally  withstood 
the  strain  bears  witness  that,  as  a  rule,  they  were 
in  a  sound  and  conservative  position. 

The  year  1894  was  a  period  of  extraordinary 
depression  in  all  departments  of  industry.  Sev- 
eral times  during  the  year  there  was  a  tendency 
toward  improvement;  but  the  deficient  revenues 
of  the  Government — which  twice  compelled  the 


THE   PANIC   OF   1893.  183 

issue  of  fifty  millions  of  bonds,  the  heavy  gold 
exports,  the  low  prices  of  our  products,  tariff 
uncertainties,  the  wrangle  over  the  proposition 
to  "coin  the  seigniorage,"  fears  of  "free  silver" 
legislation,  the  revolutionary  labor  troubles, 
and  other  events,  constantly  deferred  the  return 
of  confidence,  and  arrested  the  revival  of  trade.1 
In  April  and  May  came  disastrous  floods  in 
the  Middle  States,  the  strike  of  the  Connellsville 
coke-workers,  the  Coxey  armies  of  tramps,  the 

1  "  The  gold  exports  are  themselves  the  evidence  of  the 
destruction  of  confidence,  for  on  the  basis  of  our  ordi- 
nary trade  requirements  there  could  be  no  need  for  gold 
shipments,  as  ohe  excess  of  exports  of  merchandise  and 
silver  for  the  twelve  months  ending  November  30,  1894 
amounted  to  the  large  sum  of  $211,932,000.  In  face  of 
this  large  trade  balance,  we  were  obliged  to  ship  in  the 
same  twelve  months  no  less  than  $73, 704, 000  gold,  net, 
making  the  total  excess  of  exports  almost  three  hundred 
million  dollars  ($285,636,000). 

Low  prices  nearly  everywhere  were  a  striking  char- 
acteristic of  the  year,  accentuating  the  depression,  while 
at  the  same  time  aggravating  it.  The  price  of  wheat 
several  times  got  down  to  below  55  cents  a  bushel  in 
New  York  ;  cotton  sold  at  5J-  cents  a  pound  in  Novem- 
ber ;  print  cloths  got  down  to  2f  cents  a  yard.  Besides 
this,  we  might  mention  various  other  articles  and  com- 
modities which  sold  at  extremely  low  quotations,  such 
as  iron,  steel,  sugar,  etc. " — Commercial  and  Financial 
Chronicle. 


184  GIVING    AND    GETTING    CREDIT. 

bituminous  coal-miners'  strike,  which  rendered 
it  necessary  to  call  out  the  militia  in  eight  or 
ten  States,  and  the  resulting  "coal  famine." 
The  event  of  June  and  July  was  the  great  and 
stormy  strike  of  the  American  Railway  Union 
to  enforce  the  demands  of  the  Pullman  em- 
ployees. Government  expenditures,  for  the  fiscal 
year  ending  July  1st,  1894,  were  about  $70,000,- 
000  in  excess  of  the  revenue. 

On  the  8th  of  August,  the  gold  balance  in  the 
Treasury  stood  at  $52,189,500,  the  lowest  figure 
of  the  year.  The  enactment  of  the  Tariff  Bill, 
which  went  into  effect  on  the  28th  of  August,  at 
once  increased  the  revenues  of  the  Government, 
and  imparted  some  life  to  business.  In  Septem- 
ber there  was  a  better  demand  for  goods,  stimu- 
lated by  needs  for  consumption,  and  some  hope- 
ful signs  of  slowly  returning  prosperity.  There 
were  no  new  disturbing  developments,  and  a  de- 
creasing number  of  failures.  Production  was 
expanding. 

But  again,  in  December,  the  outflow  of  gold 
was  heavy,  large  shipments  being  made  each 
week  through  the  month,  and  the  "  bad  year  of 
1894"  closed  with  drooping  markets. 


THE   PANIC   OF   1893.  185 

It  became  painfully  evident  in  January,  1895, 
that  the  gold  reserve  in  the  Treasury  must  again 
be  replenished.  Another  issue  of  Government 
bonds  was  therefore  sold,  in  February,  to  a  syn- 
dicate of  bankers,  who  contracted  to  import  gold, 
and  to  maintain  such  rates  for  foreign  exchange 
as  to  render  further  exports  of  the  metal  un- 
profitable. It  proved  a  felicitous  and  mas- 
terful stroke  of  policy. 

It  seems  now  to  have  been  the  turning-point 
in  the  great  panic.  The  ebbing  tide  of  gold  was 
at  once  checked,  and  the  general  movement  of 
affairs  put  to  the  right-about.  Hope  revived ; 
confidence  grew.  Depression  gave  way  to  en- 
thusiasm. Securities,  iron,  wheat,  cotton,  all 
the  staples,  advanced  rapidly. 

It  is  impossible  to  predict  what  the  future 
may  bring,  but  up  to  this  time,  (August),  noth- 
ing has  transpired  to  hinder  the  full  return  of 
prosperity.  The  demand  for  labor  increases; 
wages  advance;  business  improves;  crops 
promise  fairly  well.  Money  is  abundant,  and 
interest  low,  with  every  prospect  that  it  will 
long  remain  so.  Belief  has  become  general 
that  industrial  interests  are  at  last  coming  up 


186  GIVING   AND   GETTING   CREDIT. 

out  of  the  wilderness  of  evil  days,  and  now  face 
toward  piping  times.  The  menacing  clouds  re- 
maining in  the  horizon  are  the  scant  revenue 
of  the  Government  and  the  condition  of  the 
National  Treasury,  uncertainty  regarding  silver 
legislation,  and  the  currency  question. 

It  is  alleged  that  the  Bland  and  Sherman  laws 
have  brought  upon  the  Government  a  loss  of 
nearly  two  hundred  millions,  and  upon  the  peo- 
ple panic,  deprivation,  and  distress.  But  they 
were  circumscribed  in  their  powers  for  evil,  be- 
cause they  authorized  the  issue  of  silver  coin 
and  currency  only  within  certain  limits. 

But  it  is  to  these  limitations  alone  that  the 
partisans  of  silver  ascribe  the  mischief.  We 
are  asked  to  believe  that  if  these  enactments 
had  but  sanctioned  unlimited  silver  coinage, 
they  would  have  proved  fountains  of  boundless 
prosperity,  instead  of  panic-breeders.  This  is 
to  say,  that  if  we  merely  put  our  hands  into  the 
fire  they  may  be  burned,  but  if  we  plunge  in  all 
over  we  shall  remain  cool,  comfortable,  and 
happy. 

It  is  from  texts  like  this  that  a  multitude  of 
mining  colonels,  politicians,  populists,  and 


THE   PANIC  OF   1893.  187 

quibbling  demagogues  seeking  to  ride  to  power 
and  plunder  upon  any  specious  fad  that  offers, 
have  been  preaching  in  the  crusade  for  free  silver 
coinage.  They  are,  in  reality,  attempting  to 
manufacture  sufficient  votes  to  force  fifty  cents' 
worth  of  silver  upon  the  people,  as  the  lawful 
equivalent  of  a  dollar's  worth  of  gold. 

Their  success  would  banish  gold  from  circula- 
tion, and  the  price  of  commodities  would  soon 
be  adjusted  to  the  value  of  silver  as  bullion. 
Two  Mexican  silver  dollars  can  now  be  obtained 
in  exchange  for  one  stamped  with  the  American 
Eagle,  because  our  Government  is  pledged  to 
redeem  the  latter  in  gold.  But  when  the  Gov- 
ernment shall  no  longer  maintain  parity  be- 
tween its  coinage  of  gold  and  silver,  the  Mexi- 
can dollar  will  be  more  valuable  than  ours, 
because  it  contains  more  silver. 

It  were  better  that  we  call  half-a-bushel  a 
bushel,  and  half -a -yard  a  yard,  than  half-a-dol- 
lar's  worth  of  silver  a  dollar.  This  nation  must 
have  an  honest  unit  of  value,  first,  last,  and  all 
the  time. 

The  campaign  in  behalf  of  "  Free  Silver"  has 
been  conducted  with  vigor  and  shrewdness,  but, 


188  GIVING  AND   GETTING   CREDIT. 

thanks  to  the  press  and  the  platform,  light  is  at 
last  reaching  the  farmers  who  have  grain  to 
sell,  the  five  million  depositors  in  savings  banks, 
the  wage  and  salary  earners,  and  all  good  citi- 
zens up  and  down  the  land  who  read  and  think. 
They  are  fast  learning  that  free  silver  coinage 
is  a  delusion  and  a  snare,  and  the  danger  that 
the  nation  may  be  plunged  into  its  mad  confu- 
sion is  constantly  decreasing. 

Silver  is  an  old  and  faithful  servant,  but  com- 
merce has  outgrown  its  use,  except  as  subsidiary 
coin.  That  the  great  nations  will  unite  to  rein- 
state it  is  altogether  improbable.1  Bimetallism 
has  become  a  "back  number."  For  the  United 


1  The  first  International  Monetary  Conference  was 
that  of  June,  1867,  held,  on  invitation  of  the  French 
Government,  in  Paris,  "  to  consider  the  question  of  uni- 
formity of  coinage,  and  to  seek  for  the  basis  of  ulterior 
negotiations."  The  "United  States,  and  eighteen  of  the 
principal  countries  of  Europe,  were  represented.  The 
conference  voted  unanimously  against  the  adoption,  by 
the  countries,  of  the  silver  standard  ;  and  unanimously, 
with  the  exception  of  the  Netherlands,  in  favor  of  the 
single  gold  standard. 

The  second  International  Monetary  Conference  was 
called  by  the  United  States,  and  held  at  Paris  in  1878. 
Germany  refused  to  send  delegates,  but  twelve  countries 
were  represented.  It  was  the  opinion  of  the  delegates, 


THE   PANIC   OF   1893.  189 

States  alone  to  sanction  unlimited  silver  coinage 
at  any  ratio  with  gold  which  the  friends  of 
silver  would  approve,  would  be  to  open  upon  the 
country  a  Pandora's  box  of  evils. 

The  most  enlightened  opinion  now  holds  that 
the  world  has  reached  a  stage  in  its  progress 
where  gold  and  silver  can  no  longer  be  forced 
to  bear  any  fixed  relation  to  each  other  as  stan- 
dard measures  and  representatives  of  value,  and 
that  the  best  interests  of  mankind  now  require 
the  adoption  of  the  rarer,  more  valuable,  and 


that  the  use  of  gold  and  silver  as  money  should  be  left 
to  the  discretion  of  each  state,  or  group  of  states. 

The  third  such  conference,  that  of  1881,  was  called  by 
France  and  the  United  States,  "  to  examine  and  adopt, 
for  the  purpose  of  submitting  the  same  to  the  govern- 
ments represented,  a  plan  and  a  system  for  the  re-estab- 
lishment of  the  use  of  gold  and  silver  as  bimetallic 
money,  according  to  a  settled  value  between  those 
metals."  Nineteen  countries  were  represented,  but  the 
conference  adjourned  without  practical  results. 

The  fourth,  and  last,  International  Monetary  Confer- 
ence met  at  Brussels  in  1892.  It  was  called  by  the  Gov- 
ernment of  the  United  States,  "for  the  purpose  of  con- 
ferring as  to  what  measures,  if  any,  can  be  taken  to  in- 
crease the  use  of  silver  as  money  in  the  currency  system 
of  nations."  Twenty  countries  were  represented  at  this 
conference,  but  it  adjourned  without  definite  practical 
conclusions. 


190  GIVING   AND    GETTING    CREDIT. 

more  stable  gold  as  the  universal  foundation 
money. 

t 

With  the  progress  which  is  anticipated  for 
the  coming  century,  along  all  lines  of  thought 
and  industry,  will  a  way  be  found  to  prevent 
panics? 

We  cannot,  of  course,  foresee  coming  condi- 
tions, but,  as  the  causes  of  panics  and  their 
remedies  are  in  the  keeping  chiefly  of  those 
who  suffer  from  them,  it  seems  not  unreason- 
able to  expect  that  their  prevention  may  be 
among  the  social  and  economic  victories  of  the 
future.  It  may,  at  least,  be  confidently  pre- 
dicted, that  if  their  recurrence  cannot  be  en- 
tirely obviated  or  suppressed,  their  power  for 
mischief  will  be  curbed — that  as  the  world  gains 
experience  and  wisdom,  panics  will  become  less 
frequent,  less  severe,  and  of  shorter  duration. 

Yet  there  are  those  who  contend  that  panics 
will  continue  to  come  and  go  as  in  times  past, 
in  virtue  of  some  vast  purpose,  .some  principle 
of  rhythmic  ebb  and  flow  involved  in  the  un- 
folding plan  of  evolution.  They  argue  that,  as 
the  law  that  all  must  die  rules  over  all  causes  of 


THE   PANIC   OF   1893.  191 

death,  so,  under  law,  panics  must  inevitably 
accompany  commercial  activity,  independently 
of  desultory  events  held  to  be  their  proximate 
causes,  such  as  good  or  bad  crops,  the  policy 
of  political  parties,  or  even  the  caprices  of  hu- 
man nature. 

It  may  be  so,  but  we,  practical  people,  can 
hardly  accept  such  theories.  Yet  we,  too,  be- 
lieve in  the  reign  of  absolute  law,  such,  for  ex- 
ample, as  that  which  governs  the  running  of  a 
watch.  If  it  is  badly  constructed,  if  there  is 
sand  among  its  cogs,  or  its  wheels  get  askew,  it 
will  not  keep  time  until  it  is  repaired  and  ad- 
justed. In  other  words,  we  believe  in  the  law 
that  effect  follows  cause,  and  that  the  former 
will  be  differentiated  as  we  modify  the  latter. 

If  we  may  at  all  judge  the  future  by  the  past, 
the  panics  that  lie  along  the  course  of  affairs 
will  prove  beacon-lights  of  warning  and  in- 
struction. 

They  teach,  among  other  things,  that  it  is  not 
law  but  labor  that  creates  value,  and  that  the 
dollar,  the  unit  of  value,  must  be  rigorously 
measured  by  the  average  amount  of  intelli- 


192  GIVING   AND   GETTING    CREDIT. 

gence,  capital,  and  labor  required  to  produce  its 
metal.  And  furthermore,  that  a  baseless,  or  too 
much  expanded  paper  currency,  is  sure  to  prove 
a  treacherous  stimulus,  which  will  leave  in  its 
wake  depression,  disorder,  and  insolvency. 

They  give  grounds  for  the  conclusion  that  the 
notion  of  a  so-called  "elastic  currency,"  or  one 
which  will  automatically  expand  and  contract 
according  to  the  needs  of  the  people,  is  a  fal- 
lacy, because  the  inherent  force  of  money 
makes  only  for  expansion.  The  kite  must  have 
a  tail. 

A  study  of  panics  will  suggest  to  the  vigilant 
and  cautious  business  man  that  he  should  be  on 
the  lookout  for  a  sudden  change  of  popular  sen- 
timent after  a  lengthened  period  of  general  pros- 
perity and  expansion  of  credit. 

He  will  observe  that  the  conditions  which 
have  usually  preceded  a  panic  were  something 
as  follows:  speculation  active,  labor  well  em- 
ployed, immigration  heavy,  stocks,  commodi- 
ties, and  especially  iron  and  its  products  have 
advanced  regularly  in  price,  and  become  station- 
ary or  top-heavy.  Luxury  and  expenditure 
flourish,  and  the  pace  of  everything  is  swift. 


THE   PANIC   OF   1893.  193 

Bank  statements  show  large  amounts  of  loans 
and  discounts,  and  decreasing  deposits. 

When,  on  the  other  hand,  the  panic  has 
passed,  and  the  end  of  liquidation  has  come, 
when  prices  have  touched  bottom  and  begin  to 
rebound,  when  idle  workmen  find  employment, 
when  bank  statements  show  increasing  de- 
posits and  a  healthy  demand  for  discounts,  and 
the  general  stringency  of  expenditure  is  relaxed, 
he  will  naturally  conclude  that  conditions  indi- 
cate a  return  of  confidence,  a  rapid  resumption 
of  prosperous  business,  and  an  upward  move- 
ment, which  will  probably  last  from  two  to  four 
years,  with  comparative  safety  in  extending 
credit. 


APPENDIX. 


ASSIGNMENT,  INSOLVENT,  EXEMPTION,  AND  OTHER 
LAWS  OF  ALL  THE  STATES  AND  TERRITORIES. 

ALABAMA. — Has  no  distinct  insolvent  or  assign- 
ment law,  but  assignments  can  be  made  at  common 
law.  There  can  be  no  preferences  in  a  general  assign- 
ment. Acceptance  of  a  dividend  under  assignment 
does  not  discharge  debtor.  Twenty  years  bar  actions 
upon  judgments.  Six  years  bar  actions  for  money 
loaned,  stated  accounts,  or  promise  in  writing.  Three 
years  bar  open  accounts.  LEGAL  INTEREST,  eight  per 
cent.  EXEMPTIONS  i  Homestead  of  house  and  lot  in 
town,  or  one  hundred  and  sixty  acres  in  the  country,  in 
either  case  not  to  exceed  two  thousand  dollars  in  value  ; 
also  personal  property  to  the  value  of  one  thousand 
dollars,  certain  specified  articles,  and  wages  to  the 
amount  of  twenty-five  dollars  per  month. 

ARIZONA.— Has  no  insolvent  law.  Five  years  bar 
actions  on  judgments ;  four  years  bar  contracts  in  writ- 
ing ;  two  years  if  not  in  writing.  EXEMPTIONS  :  The 
homestead  not  exceeding  in  value  five  thousand  dollars, 
and  certain  specified  articles  to  the  value  of  six  hundred 
dollars.  LEGAL  INTEREST,  ten  per  cent. 
195 


196  APPENDIX. 

ARKANSAS.— Has  an  assignment  law  for  the  benefit 
of  creditors  which  permits  preferences.  It  does  not  dis- 
charge the  debtor  from  his  obligations  without  unani- 
mous consent  of  the  creditors,  nor  does  it  affect  the 
claims  of  those  who  do  not  come  into  the  assignment. 
LIMITATIONS  OF  ACTIONS  :  On  accounts,  three  years ;  notes 
and  sealed  instruments,  five  years ;  on  judgments,  ten 
years.  LEGAL  INTEREST,  six  per  cent.  EXEMPTIONS: 
For  head  of  a  family,  outside  of  any  town  or  city,  one 
hundred  and  sixty  acres  of  land,  not  to  exceed  twenty-five 
hundred  dollars  in  value,  or  not  less  than  eighty  acres 
without  regard  to  value.  In  city  or  town  not  exceeding 
one  acre,  of  the  value  of  twenty-five  hundred  dollars,  or 
not  less  than  one-fourth  of  an  acre  without  regard  to 
value  ;  also,  for  the  head  of  a  family,  personal  property 
to  the  value  of  five  hundred  dollars.  For  a  single  person, 
two  hundred  dollars'  worth  of  personal  property  besides 
wearing  apparel. 

CALIFORNIA.— Has  an  insolvent  law,  which  does  not 
permit  preferences,  but  under  which  the  debtor  may  be 
discharged  from  obligations  incurred  in  the  State  to 
citizens  of  the  State.  Non-resident  creditors,  who  do 
not  voluntarily  become  parties  to  the  proceedings,  can 
retain  their  claims  against  the  debtor.  LIMITATIONS: 
Actions  must  be  commenced  within  five  years  on  the 
judgment  or  decree  of  a  court ;  within  four  years  on  a 
promissory  note,  contract,  or  obligation  in  writing, 
executed  in  the  State  ;  within  two  years  upon  any  con- 
tract or  obligation  not  in  writing.  Seven  per  cent  is 
legal  interest.  Interest  cannot  be  collected  on  open  ac- 
counts. EXEMPTIONS:  The  homestead  (under  certain 
conditions) ,  not  exceeding  in  value  five  thousand  dol- 
lars ;  the  cabin  or  dwelling  of  a  miner,  not  exceeding 
five  hundred  dollars  in  value,  and  a  list  of  specified 


APPENDIX.  197 

articles  necessary,  or  applicable,  to  the  trade  or  calling 
of  the  debtor.  Days  of  grace  are  not  allowed  on  bills 
of  exchange  or  promissory  notes. 

COLORADO. —Has  an  assignment  law,  which  does 
not  permit  preferences,  and  does  not  discharge  the 
debtor  without  the  unanimous  consent  of  his  creditors. 
The  claims  of  creditors  who  do  not  come  into  an  assign- 
ment are  secondary  to  those  filed  within  three  months 
after  assignee  has  mailed  notice  of  assignment,  unless 
creditors  can  show  that  they  did  not  receive  such  notice. 
LIMITATIONS  OP  ACTIONS  :  Execution  may  issue  on  a 
judgment  for  ten  years  from  its  entry,  but  it  is  then 
considered  as  satisfied  unless  revived.  Actions  for  debt 
founded  upon  contract  or  liability  in  action  must  be 
brought  within  six  years.  EXEMPTIONS  :  Tools  and 
stock  in  trade,  used  in  carrying  on  business,  to  the  value 
of  two  hundred  dollars ;  library  and  implements  of  any 
professional  man,  not  exceeding  three  hundred  dollars. 
Wearing  apparel,  and  specified  articles.  LEGAL  INTER- 
EST, eight  per  cent. 

CONNECTICUT.— Has  an  insolvent  law,  but  the 
debtor  is  not  permitted  to  make  a  preferential  assign- 
ment. If  his  estate  pays  seventy  per  cent  on  all  claims 
that  have  been  proved,  he  will  receive  his  discharge  in 
full  for  such  claims  only ;  all  other  claims  hold  good 
against  his  property  after  the  expiration  of  two  years 
from  his  discharge.  EXEMPTIONS:  Necessary  wearing 
apparel,  bedding,  ..nd  furniture.  Implements  of  the 
debtor's  trade,  and  certain  specified  articles  ;  the  land  and 
dwelling  actually  occupied  by  the  owner,  to  the  value  of 
one  thousand  dollars,  provided  he  has  recorded  his  de- 
claration to  the  effect  that  it  is  his  homestead.  STATUTE 
OF  LIMITATIONS  bars  action  on  contract  under  seal,  or 


198  APPENDIX. 

non- negotiable  note,  after  seventeen  years ;  on  account, 
book  debt,  simple  contract,  writing  not  under  seal,  or 
negotiable  notes,  six  years  ;  express  contracts,  of  which 
there  is  no  written  memorandum,  three  years.  LEGAL 
INTEREST  in  the  State,  six  per  cent. 

DELAWARE. — Has  an  assignment  law,  which  does 
not  permit  preferences  in  cases  of  insolvency,  nor  does 
it  permit  the  discharge  of  the  debtor  unless  the  credit- 
ors severally  agree  to  release.  The  rights  of  creditors 
who  do  not  come  into  an  assignment  are  not  affected  by 
the  assignment,  but  they  will  lose  their  dividends. 
LIMITATIONS  OF  ACTIONS  :  Accounts,  three  years ;  notes, 
six  years.  Judgments  presumed  paid  in  twenty  years 
unless  rebutted.  A  verbal  promise  to  pay  a  debt  will, 
if  proved,  revive  it.  LEGAL  INTEREST,  six  per  cent ; 
penalty  for  usury,  forfeiture  of  a  sum  equal  to  the 
amount  loaned.  EXEMPTIONS  permitted  in  this  State 
are  small  and  they  vary  in  the  different  counties. 

DISTRICT  OF  COLUMBIA.— Preferences  in  anas- 
signment  are  void,  and  all  debts  are  payable  pro  rata. 
EXEMPTIONS  :  Household  furniture  and  wearing  apparel 
of  a  householder  are  exempt  except  for  servant's  or 
laborer's  wages  due,  to  the  amount  of  three  hundred  dol- 
lars ;  provisions  and  fuel  for  three  months  ;  mechanic's 
tools  or  implements,  of  any  trade,  to  the  value  of  two 
hundred  dollars,  with  stock  to  the  same  amount ;  library 
and  implements  of  a  professional  man,  to  the  value  of 
three  hundred  dollars ;  farmers'  team  and  utensils  to 
the  value  of  one  hundred  dollars ;  family  pictures  and 
library,  to  the  value  of  four  hundred  dollars.  LIMITA- 
TION, OF  ACTIONS  :  Actions  must  be  brought  within  three 
years  on  simple  contracts,  book  accounts,  notes,  etc. 
Twelve  years  is  the  limit  on  specialties.  LEGAL  IN- 
TEREST, six  per  cent.  % 


APPENDIX.  199 

FLORIDA.— A  general  assignment  law  exists,  which 
does  not  permit  preferences,  but  which  expressly  dis- 
charges the  debtor  if  he  complies  with  its  provisions 
It  is  believed,  however,  that  such  discharge  is  void,  if 
the  creditor  does  not  reside  in  the  State,  and  the  contract 
was  neither  made  nor  to  be  performed  therein.  Credit- 
ors who  do  not  come  into  an  assignment  lose  their  divi- 
dends. EXEMPTIONS  :  Homestead  of  one  hundred  and 
sixty  acres  of  land  and  improvements,  if  in  the  coun- 
try ;  a  residence  and  business  house  and  one-half  acre  of 
ground,  if  in  a  town  or  city,  together  with  a  thousand 
dollars'  worth  of  personal  property.  LIMITATIONS  OF 
ACTIONS  :  Accounts,  four  years  ;  notes  and  other  unsealed 
instruments,  five  years.  Judgments,  bonds,  and  notes 
under  seal,  twenty  years.  LEGAL  INTEREST,  eight  per 
cent. 

GEORGIA.— Has  an  assignment  law  (the  act  of  1880- 
81),  which  permits  preferences  under  conditions,  but 
the  unanimous  consent  of  creditors  is  necessary  to  the 
insolvent's  discharge.  Creditors  who  do  not  come  into 
the  assignment  simply  lose  the  dividend  that  may  be 
declared.  EXEMPTIONS  :  Homestead  of  realty  or  person- 
ality, or  both,  to  the  value  in  the  aggregate  of  sixteen 
hundred  dollars.  LIMITATIONS  OF  ACTIONS  :  Upon  open 
accounts,  four  years ;  notes,  etc. ,  six  years ;  sealed  in- 
struments, twenty  years.  Judgments  must  have  execu- 
tion issued  thereon  within  seven  years,  or  they  become 
dormant.  Dormant  judgment  may  be  revived  within 
three  years.  LEGAL  INTEREST,  eight  per  cent. 

IDAHO.— LIMITATIONS  OF  ACTIONS:  Instruments  in 
writing,  five  years ;  contract  or  liability,  not  founded 
in  writing,  including  accounts,  two  years.  EXEMP- 
TIONS :  Homestead,  consisting  of  dwelling-house  thereon 


200  APPENDIX. 

and  its  appurtenances,  not  exceeding  in  value  five  thou- 
sand dollars,  to  be  selected  by  the  husband  and  wife, 
or  either  of  them,  or  other  head  of  family  (the  usual 
declaration  must  be  made  and  recorded) .  A  single  per- 
son may  claim  a  homestead,  not  to  exceed  one  thousand 
dollars  in  value.  There  are,  besides,  many  articles 
specified  as  exempt.  LEGAL  INTEREST,  ten  per  cent. 

ILLINOIS. — Has  an  assignment  law,  which  permits 
no  preferences.  Acceptance  of  dividends  does  not  dis- 
charge the  debtor.  Creditors  who  do  not  come  in 
waive  claim  to  the  assets  assigned.  INTEREST  :  five 
per  cent  is  allowed  when  no  rate  is  specified.  LIMITA- 
TIONS OF  ACTIONS  :  Five  years  upon  accounts,  unwritten 
contracts,  and  for  injury  to  property  ;  upon  bonds,  notes, 
bills  of  exchange,  leases,  and  other  written  contracts, 
ten  years.  All  other  actions,  including  action  on  judg- 
ments of  other  States,  five  years. 

INDIANA. — Has  a  distinct  assignment  law,  which 
does  not,  in  a  general  assignment,  permit  preferences, 
but  a  special  assignment  may  be  made  to  secure  particu- 
lar creditors.  Unanimous  consent  of  creditors  is  neces- 
sary to  discharge  the  debtor.  Creditors  who  do  not  come 
into  an  assignment  merely  lose  their  share  of  the  assets 
assigned.  LIMITATIONS  OF  ACTIONS:  On  accounts  and 
contracts  not  in  writing,  within  six  years.  On  prom- 
issory notes,  bills  of  exchange,  and  other  written  con- 
tracts for  the  payment  of  money,  within  ten  years.  On 
judgments  of  a  court  of  record,  twenty  years.  EXEMP- 
TIONS :  Any  resident  householder  has  an  exemption  from 
levy  and  sale,  under  execution  or  attachment,  of  real  or 
personal  property,  or  both,  as  he  may  select,  to  the 
value  of  six  hundred  dollars.  The  law  further  provides 
that  no  property  shall  be  sold,  by  virtue  of  an  execution, 


APPENDIX.  201 

for  less  than  two-thirds  of  its  appraised  cash  value. 
This  provision  may,  however,  be  waived,  by  inserting 
in  the  note  or  contract :  "  Payable  without  relief  from 
valuation  or  appraisement  laws. "  But  the  right  to  ex- 
emption cannot  be  waived  by  contract.  LEGAL  INTER- 
EST, eight  per  cent. 

INDIAN  TERRITORY.— ASSIGNMENTS:  By  Act  of 
Congress,  the  statute  of  Arkansas  applies  to  this  Ter- 
ritory. EXEMPTIONS  and  LIMITATIONS,  as  written  in 
Mansfield's  Digest  of  the  State  of  Arkansas  (1884),  apply 
to  this  Territory.  LEGAL  INTEREST,  on  open  accounts, 
made  in  the  Territory,  six  per  cent.  If  not  made  there, 
rate  is  fixed  by  the  law  of  the  State  where  made.  Con- 
tracts draw  rate  contracted  for,  unless  the  rate  is  usuri- 
ous in  the  State  where  the  contract  is  made.  Land  can- 
not be  sold  under  executions.  Judgments  must  be  satis- 
fied from  personal  property. 

IOWA.— Has  a  general  assignment  law,  which  does 
not  permit  preferences ;  but  independent  of  this  law, 
and  before  assignment,  preferences  to  creditors  are  al- 
lowed, if  in  good  faith.  The  unanimous  consent  of 
creditors  is  required  for  the  debtor's  discharge.  Credit- 
ors who  do  not  come  into  the  assignment  do  not  receive 
a  dividend  from  the  assets.  Their  claims  remain  un- 
impaired. LIMITATIONS  OF  ACTIONS  :  Accounts,  five 
years  ;  notes  and  written  instruments,  ten  years ;  judg- 
ments, twenty  years.  The  failure  to  account  for  goods 
consigned  is  embezzlement.  LEGAL  INTEREST,  six  per 
cent.  EXEMPTIONS  :  Homestead  used  as  a  residence  by 
the  owner,  not  exceeding  half  an  acre  in  extent,  if 
within  a  town  plot  (or  if  not,  it  must  not  embrace  more 
than  forty  acres)  with  other  specified  personal  property. 


APPENDIX. 

KANSAS.— Has  an  assignment  law,  which  operates 
only  to  distribute  the  debtor's  property  ratably  among  all 
his  creditors  who  prove  their  claims,  but  it  does  not  dis- 
charge him  from  his  debts.  Creditors  who  do  not  come 
it:  do  uot  participate  in  the  assigned  property,  but 
tlieir  claims  continue  valid.  LIMITATIONS  OF  ACTIONS  : 
Upon  actions  not  in  writing,  three  years  ;  actions  upon 
agreements,  contracts,  and  promises  in  writing,  five 
years.  Judgments  become  dormant  five  years  after  the 
date  of  their  rendition,  or  of  the  last  execution  issued 
thereon.  A  dormant  judgment  must  be  revived  within 
one  year  after  it  has  become  dormant,  or  the  right  to 
revive  is  gone.  LEGAL  INTEREST,  six  per  cent.  EX- 
EMPTIONS :  A  homestead,  to  the  extent  of  one  hundred 
and  sixty  acres  of  farming  land,  or  one  acre  within  the 
limits  of  an  incorporated  town  or  city,  occupied  as  a 
residence  by  the  family  of  the  owner,  together  with  all 
improvements  on  the  same,  shall  he  exempt  from  forced 
sale  under  any  process  of  law,  and  shall  not  be  alienated 
except  by  joint  consent  of  husband  and  wife,  when  that 
relation  exists.  Not  exempt,  however,  for  taxes,  or 
purchase- money  obligations,  or  liens  for  improvements. 
No  value  is  affixed  to  the  homestead.  It  may  be  worth 
a  million  dollars.  Earnings  necessary  for  the  support 
of  the  debtor's  family  are  also  exempted,  and  certain 
specified  articles. 

KENTUCKY. —Voluntary  assignments  by  debtors 
must  be  made  for  the  benefit  of  all  creditors.  Any 
creditor  not  presenting  his  claim  within  due  time  will 
be  barred,  unless  otherwise  ordered  by  the  court. 
LIMITATION  OF  ACTIONS  :  Actions  upon  merchant's  ac- 
counts for  goods  sold  to  consumers  shall  be  brought  in 
two  years,  the  time  to  be  computed  from  the  first  day 
of  January  next  after  the  goods  are  sold  and  charged. 


APPENDIX.  203 

Actions  upon  contract,  express  or  implied,  not  in  writ- 
ing, or  bills  of  exchange,  drafts,  or  upon  a  promissory 
note  placed  on  the  footing  of  a  bill  of  exchange,  or  upon 
accounts  between  merchants  or  their  agents,  must  be 
brought  within  five  years.  Actions  upon  judgments  or 
contracts  in  writing  must  be  brought  within  fifteen 
years.  EXEMPTIONS  :  There  is  a  homestead  exemption 
of  $1,000  to  an  actual,  bonafide,  resident  housekeeper; 
with  certain  articles  of  personal  property,  and  wages  not 
to  exceed  fifty  dollars,  to  persons  who  work  for  wages, 
under  certain  conditions.  LEGAL  INTEREST,  six  per 
cent. 

LOUISIANA. —This  State  does  not  permit  assign- 
ments of  any  sort,  but  it  has  an  insolvent  law,  under 
which,  by  consent  of  a  majority  in  number  and  amount 
of  his  creditors,  a  debtor  may  obtain  his  discharge,  ex- 
cept as  to  those  out  of  the  State,  and  to  these  the  State 
courts  are  closed  to  suits  against  the  insolvent  debtor. 
EXEMPTIONS:  Homestead  under  certain  conditions, 
specified  articles,  laborers'  wages,  etc.  LIMITATIONS  OF 
ACTIONS  :  Prescription  of  three  years  on  all  accounts, 
money  lent,  etc.  This  prescription  only  ceases  from 
the  time  there  has  been  an  account  acknowledged  in 
writing,  a  note  or  bond  given,  or  an  action  commenced. 
Five  years — actions  on  bills  of  exchange  and  promissory 
notes,  or  rescission  of  contracts.  Ten  years — all  judg- 
ments for  money ;  may  be  revived  at  any  time  before 
prescription  has  run.  Thirty  years — all  actions  for  im- 
movable property.  LEGAL  INTEREST,  five  per  cent. 

MAINE. —Has  an  insolvency  law,  which  does  not 
permit  preferences,  but  provides  for  the  discharge  of  a 
debtor  who  is  for  the  first  time  insolvent.  Those  who 
do  not  come  into  the  assignment,  should  one  be  made, 


204  APPENDIX. 

lose  their  dividends,  but  creditors  who  are  not  residents 
of  the  State  may  still  enforce  their  claims.  LIMITATIONS 
OF  ACTIONS  :  All  actions  of  debt,  founded  on  contracts 
not  under  seal,  must  be  commenced  within  six  years 
after  cause  of  action  accrues  ;  judgments  and  witnessed 
promissory  notes,  twenty  y^ars.  EXEMPTIONS:  By 
complying  with  certain  statutory  provisions  (not  often 
taken  advantage  of) ,  there  is  exempted  a  lot  of  land, 
dwelling-house,  etc.,  not  exceeding  five  hundred 
dollars  in  value — besides  specified  articles.  LEGAL  IN- 
TEREST, six  per  cent.  Any  rate  may  be  fixed  by  con- 
tract. 

MARYLAND.— Has  a  State  insolvency  law,  which 
permits  an  assignment  with  preferences,  under  certain 
conditions.  The  debtor  may  obtain  his  discharge  under 
the  provisions  of  this  law,  but  it  is  a  nullity  against 
non-resident  creditors,  unless  they  waive  their  right  by 
voluntarily  becoming  parties  to,  and  claiming  under 
the  insolvency  proceedings.  LIMITATIONS  OF  ACTIONS  : 
Accounts  and  notes  are  barred  after  three  years.  Sealed 
instruments  and  judgments  after  twelve  years.  A 
verbal  promise  will  revive  a  debt  barred  by  the  Statute 
of  Limitations.  EXEMPTIONS  :  One  hundred  dollars' 
worth  of  property  is  exempt,  and,  in  addition  thereto, 
all  wearing  apparel,  books,  and  the  tools  of  mechanics, 
except  books  or  tools  kept  for  sale.  LEGAL  INTEREST, 
six  per  cent. 

MASSACHUSETTS.— Has  a  separate  and  distinct  in- 
solvent law.  The  debtor  is  not  allowed  to  make  a  pref- 
erential assignment  unless  made  six  months  before  *he 
filing  of  the  petition  in  insolvency.  The  debtor  may 
obtain  his  discharge  if  his  assets  pay  fifty  per  cent  of 
the  claims  proved  ;  otherwise,  assent  in  writing  of  ma- 


APPENDIX.  205 

jority  in  number  and  value  of  creditors  who  have 
proved  is  necessary.  Claims  not  proved  are  barred, 
unless  creditors  are  non-residents.  LIMITATIONS  OF  AC- 
TIONS :  Accounts  and  actions  of  contract  (excepting  ac- 
tion brought  upon  a  promissory  note,  signed  in  the 
presence  of  an  attesting  witness),  six  years.  Judg- 
ments and  actions,  not  specially  otherwise  limited, 
twenty  years.  EXEMPTIONS:  Homestead  of  a  house- 
holder having  a  family,  to  the  value  of  eight  hundred 
dollars,  if  he  has  duly  declared  his  design  to  hold  it  as 
a  homestead,  and  recorded  it  in  compliance  with  the 
law  ;  besides  other  specified  articles.  LEGAL  INTEREST, 
six  per  cent. 

MICHIGAN.— There  is  in  this  State  an  assignment 
law.  Preferences  are  forbidden.  The  debtor  cannot 
obtain  his  discharge  without  unanimous  consent  of  his 
creditors.  Those  who  do  not  come  into  the  assignment 
within  ninety  days,  and  prove  their  claims,  lose  their 
share  of  the  assets  assigned.  LIMITATIONS  OF  ACTIONS  : 
Six  years  on  accounts  and  notes ;  justices'  judgments,  six 
years.  Sealed  instruments,  and  judgments  of  courts  of 
record,  ten  years.  EXEMPTIONS  :  Land  not  exceeding 
forty  acres,  dwelling,  and  improvements  in  the  country  ; 
or  land  not  exceeeding  one  lot  in  town  or  city,  with 
dwelling,  etc.,  owned  and  occupied  by  a  resident  of  the 
State,  to  the  value  of  fifteen  hundred  dollars;  also 
specified  articles.  LEGAL  INTEREST,  six  per  cent. 

MINNESOTA.— Has  an  assignment  law,  which  does 
not  permit  preferences.  LIMITATIONS  :  All  actions  on 
contracts,  express  or  implied,  must  be  commenced 
within  six  years.  Judgments,  ten  years.  EXEMPTIONS  : 
Homestead,  consisting  of  not  to  exceed  eighty  acres  of 
land,  with  dwelling  and  appurtenances,  in  the  country ; 
14 


206  APPENDIX. 

or  one  lot,  with  dwelling,  in  a  town  or  city  having  over 
five  thousand  inhabitants,  or  one-half  acre  in  a  town  or 
village  having  less  than  five  thousand  inhabitants,  and 
dwelling,  with  appurtenances,  owned  and  occupied  by 
any  resident  of  the  State.  LEGAL  INTEREST^  ten  per 
cent. 

MISSISSIPPI.— A  distinct  assignment  law  exists, 
which  went  into  operation  with  the  adoption  of  the 
new  code,  in  the  fall  of  1892.  It  permits  preferences, 
but  acceptance  of  a  dividend  from  an  estate  under  as- 
signment does  not  discharge  the  debtor.  Those  who  do 
not  come  in  get  no  distributive  share.  EXEMPTIONS  : 
Homestead  land,  not  to  exceed  one  hundred  and  sixty 
acres,  with  buildings,  owned  and  occupied  as  a  residence, 
not  exceeding  two  thousand  dollars  in  value.  This  may 
be  increased  to  three  thousand  dollars,  by  making  and 
recording  a  homestead  declaration.  There  are  numer- 
ous other  specified  exemptions  of  implements  and  per- 
sonal property.  LIMITATIONS  OF  ACTIONS  :  Accounts  and 
all  unwritten  contracts,  three  years;  notes,  bonds,  etc., 
six  years;  judgments,  seven  years.  Partial  payments 
do  not  stop  the  running  of  limitations.  LEGAL  INTER- 
EST, six  per  cent 

MISSOURI.— Hasan  assignment  law,  preferences  not 
permitted.  Debtor  is  not  discharged  without  consent 
of  his  creditors.  Acceptance  of  dividend  does  not  pre- 
vent creditor  from  placing  balance  of  his  claim  in  judg- 
ment. LIMITATIONS  OF  ACTIONS  :  On  accounts,  five  years ; 
notes  and  sealed  instruments,  ten  years;  judgments, 
ten  years.  EXEMPTIONS:  Homestead  of  resident,  mar- 
ried man,  with  varying  quantity  of  land,  according  to 
locality  in  the  country,  or  in  town  or  city  according  to 
population,  not  to  exceed  in  value  fifteen  hundred  dol- 


APPENDIX.  207 

lars.  Personal  property  or  real  estate,  to  the  amount  of 
not  less  than  three  hundred  dollars ;  with  tools,  furni- 
ture, etc.,  as  specified.  LEGAL  INTEREST,  six  per  cent. 

MONTANA.  — Assignments  may  be  made  at  common 
law,  with  preferences.  Acceptance  of  a  dividend  from 
an  estate  under  assignment  does  not  discharge  the 
debtor.  Those  who  do  not  come  in  lose  their  dividends. 
LIMITATIONS  OF  ACTIONS:  Upon  accounts,  five  years; 
note,  or  written  obligation,  eight  years;  judgments,  ten 
years.  EXEMPTIONS  :  To  married  men,  or  the  head  of  a 
family,  homestead,  not  to  exceed  in  value  twenty-five 
hundred  dollars,  with  other  specified  exemptions ;  none 
of  the  personal  property  is  exempt  for  the  wages  of  any 
clerk,  mechanic,  laborer,  or  servant.  LEGAL  INTEREST, 
ten  per  cent. 

NEBRASKA.— Has  a  distinct  assignment  law,  which 
does  not  permit  preferences,  and  acceptance  of  a  divi- 
dend does  not  discharge  the  debtor.  Those  who  do  not 
come  in  merely  lose  their  distributive  share  of  the  as- 
sets. LIMITATIONS  OP  ACTIONS  :  Actions  upon  specific 
written  contracts,  or  foreign  judgments,  must  be 
brought  within  five  years ;  actions  upon  contracts  not 
in  writing,  four  years.  EXEMPTIONS  :  Homestead  with 
dwelling  thereon  and  its  appurtenances,  all  not  over  two 
thousand  dollars  in  value,  to  the  head  of  a  family. 
Heads  of  families,  who  have  neither  lands  nor  houses 
subject  to  exemption  as  a  homestead,  shall  have  exempt 
from  forced  sale  on  execution,  the  sum  of  five  hundred 
dollars  in  personal  property.  Other  exemptions  of 
specified  articles,  etc.  LEGAL  INTEREST,  seven  per  cent. 

NEVADA.— Has  "an  act  for  the  relief  of  insolvent 
debtors  and  protection  of  creditors" — does  not  permit 


208  APPENDIX. 

preferences.  By  giving  up  all  his  property,  and  men- 
tioning all  his  creditors,  with  amounts  due  them,  etc. , 
in  his  schedule,  the  debtor  may  obtain  his  discharge. 
LIMITATIONS  OF  ACTIONS  :  Upon  contract,  obligation  or 
liability  not  founded  upon  an  instrument  in  writing, 
within  four  years ;  if  founded  upon  an  instrument  in 
writing,  five  years;  judgments,  six  years.  EXEMP- 
TIONS :  Homestead,  not  exceeding  five  thousand  dollars 
in  value,  for  the  head  of  a  family,  and  other  specified 
exemptions.  LEGAL  INTEREST,  ten  per  cent. 

NEW  HAMPSHIRE.— Has  assignment  law;  permits 
no  preferences.  If  debtor's  estate  pays  seventy  per 
cent,  he  is  entitled  to  a  discharge.  If  less  than  seventy 
per  cent,  he  can  be  discharged  only  on  written  consent 
of  three-quarters  in  number  and  amount  of  his  creditors. 
LIMITATIONS  OP  ACTIONS  :  Accounts  and  simple  promis- 
sory notes,  six  years  after  maturity.  Judgments,  sealed 
instruments,  and  notes  secured  by  mortgage  of  real 
estate,  twenty  years.  EXEMPTIONS  :  Homestead,  to  the 
value  of  five  hundred  dollars,  with  specified  articles. 
LEGAL  INTEREST,  six  per  cent. 

NEW  JERSEY.— Hasan  insolvent  law,  which  affects 
only  persons  imprisoned  for  debt  under  it ;  the  debtor's 
body  may  be  released  from  imprisonment,  but  claims  are 
not  released.  The  debtor  may  make  an  assignment  of 
his  property  for  the  benefit  of  his  creditors,  but  without 
preferences.  Claims  not  due  receive  dividends,  less  a 
reasonable  rebate  of  interest ;  failure  of  the  creditor  to 
file  his  claim  before  distribution  of  the  assets  bars  him 
from  receiving  his  share  of  the  dividends.  Creditors 
who  have  presented  their  claims  are  barred  from  after- 
ward bringing  suit  against  the  debtor  upon  them,  unless 
fraud  is  proved.  Outside  of  this  law,  a  debtor  may 


APPENDIX.  209 

prefer  any  of  his  creditors  by  conveying  his  property  to 
them.  He  may  also,  at  any  time  before  judgment  and 
execution,  sell,  for  a  sufficient  consideration,  property 
which  would  otherwise  be  subject  to  the  claims  of  his 
creditors.  EXEMPTIONS:  Property  to  the  value  of  two 
hundred  dollars,  exclusive  of  wearing  apparel.  LIMI- 
TATIONS :  Accounts,  notes,  and  contracts,  not  under  seal, 
six  years ;  bonds  and  other  sealed  instruments,  sixteen 
years ;  judgments,  twenty  years.  LEGAL  INTEREST, 
six  per  cent. 

NEW  MEXICO.— Has  a  voluntary  assignment  act. 
The  proceedings  are  very  elaborate.  Preferences  not 
allowed  ;  acceptance  of  a  dividend  does  not  discharge 
debtor.  Those  who  do  not  come  in  lose  their  dividends. 
LIMITATIONS  :  Unwritten  contracts,  four  years.  Writ- 
ten instruments  and  judgments,  seven  years.  EXEMP- 
TIONS :  Homestead,  to  the  value  of  one  thousand  dollars, 
furniture,  and  specified  articles.  LEGAL  INTEREST,  six 
per  cent. 

NEW  YORK.— Has  both  an  assignment  and  an  in- 
solvent law  ;  The  latter  sometimes  called  the  "  Two-third 
Act. "  The  debtor  may  make  a  preferential  assignment, 
under  certain  limitations  and  conditions,  or  he  may 
obtain  a  discharge  from  certain  classes  of  his  obliga- 
tions under  the  insolvent  law,  without  the  unanimous 
consent  of  his  creditors.  Acceptance  of  a  dividend 
under  the  assignment  does  not  discharge  the  debtor. 
Creditors  who  do  not  come  into  the  assignment  lose  their 
dividends,  but  retain  their  claims.  EXEMPTIONS  :  The 
lot  and  buildings,  not  exceeding  one  thousand  dollars 
in  value,  owned  and  occupied  by  a  housekeeper,  having 
a  family,  and  recorded  as  homestead  property ;  with 
furniture  and  various  articles,  not  exceeding  two  hun- 
14 


210  APPENDIX. 

dred  and  fifty  dollars  in  value.  LIMITATIONS  :  Actions 
upon  a  judgment  of  a  court  of  record,  or  a  sealed  instru- 
ment, must  be  brought  within  twenty  years  after  the 
cause  of  action  accrued.  And  upon  any  other  contract, 
obligation  or  liability,  including  a  justice's  judgment, 
within  six  years.  LEGAL  INTEREST,  six  per  cent. 

NORTH  CAROLINA.—  Assignments  may  be  made, 
without  preferences.  All  debts  of  assignor  fall  due 
and  are  payable  on  the  date  of  assignment.  EXEMPTIONS  : 
Homestead,  with  buildings,  etc.,  to  the  value  of  one 
thousand  dollars,  and  personal  property  to  the  value  of 
five  hundred  dollars.  LIMITATIONS  :  Three  years,  on  ac- 
counts and  contracts,  not  under  seal ;  ten  years,  on  a 
note  under  seal.  LEGAL  INTEREST,  six  per  cent. 

NORTH  DAKOTA.— Insolvent  debtor  may  make  an 
assignment  for  the  benefit  of  his  creditors,  but  without 
preferences.  EXEMPTIONS  :  Homestead,  with  dwelling 
and  appurtenances,  not  exceeding  in  value  five  thousand 
dollars,  is  exempt,  under  certain  conditions.  A  part- 
nership firm  or  an  individual  may  also,  in  addition  to 
wearing  apparel,  etc. ,  claim  as  exempt  fifteen  hundred 
dollars'  worth  of  other  personal  property.  LIMITATIONS  : 
On  judgments,  or  on  sealed  instruments,  twenty  years  ; 
on  a  contract,  obligation,  or  liability,  express  or  implied, 
six  years.  LEGAL  INTEREST,  seven  per  cent. 

OHIO. — Has  a  distinct  assignment  law,  which  does 
not  permit  preferences.  Acceptance  of  a  dividend  does 
not  discharge  the  debtor.  Creditors  who  do  not  come 
in  receive  no  dividend.  LIMITATIONS  :  Actions  upon  a 
contract  not  in  writing,  six  years ;  upon  a  sealed  in- 
strument, or  an  agreement,  con  tract,  or  promise  in  writ- 
ing, fifteen  years ;  judgment  is  dormant  if  no  execu- 


APPENDIX.  211 

tion  is  issued  within  five  years  after  its  date.  An  action 
to  revive  dormant  judgment  must  be  brought  within 
twenty-one  years  after  it  becomes  dormant.  EXEMP- 
TIONS :  To  head  of  a  family,  homestead,  not  exceeding 
one  thousand  dollars  in  value,  and  chattel  property.  If 
cot  the  owner  of  a  homestead — personal  property  to  the 
value  of  five  hundred  dollars,  in  addition  to  chattel 
property.  LEGAL  INTEREST,  six  per  cent. 

OKLAHOMA  TERRITORY.— Assignments  may  be 
made  for  the  benefit  of  creditors,  without  preferences. 
LIMITATIONS  :  Accounts  and  contracts,  not  in  writing, 
three  years ;  agreement  or  contract  in  writing,  five 
years.  EXEMPTIONS  :  To  head  of  a  family,  one  hundred 
and  sixty  acres  in  one  tract,  with  improvements,  if  out- 
side of  a  town  or  city.  In  a  city  or  town,  not  to  exceed 
one  acre.  Judgment  debtor  has  a  right  to  select  six 
hundred  dollars'  worth  of  property,  which  shall  be  ex- 
empt from  any  levy.  LEGAL  INTEREST,  seven  per  cent. 

OREGON. — Assignments  must  be  for  the  equal  benefit 
of  all  creditors,  without  preferences.  Debtor  is  entitled 
to  a  discharge,  if  his  estate  pays  fifty  per  cent  to  his 
creditors.  LIMITATIONS  :  Judgments,  ten  years.  Action 
upon  a  contract  or  liability,  express  or  implied,  six 
years.  EXEMPTIONS  :  Homestead,  not  exceeding  in 
value  fifteen  hundred  dollars,  with  chattels.  LEGAL 
INTEREST,  eight  per  cent. 

PENNSYLVANIA.— Insolvent  may  make  a  voluntary 
general  assignment  for  the  benefit  of  his  creditors, 
without  preferences.  But  the  debtor  can  do  in  other 
ways  what  substantially  amounts  to  a  preferential  as 
signment,  viz.,  before  he  makes  his  general  assignment, 
he  may  assign  part  of  his  property  to  one  or  more  credit- 


212  APPENDIX. 

ors ;  or  he  may  confess  judgment,  under  which  the 
favored  creditor  may  make  a  levy,  and  obtain  priority. 
Creditors  who  do  not  come  into  the  assignment  simply 
fail  to  get  their  share,  their  claims  remain  intact. 
LIMITATIONS  :  Notes  and  accounts,  six  years ;  judgments 
and  instruments  under  seal,  twenty  years,  by  presump- 
tion, but  this  presumption  may  be  rebutted.  EXEMP- 
TIONS :  Things  of  domestic  use,  to  the  value  of  three 
hundred  dollars.  LEGAL  INTEREST,  six  per  cent. 

RHODE  ISLAND.— Has  no  distinct  assignment  or 
insolvent  law,  but  debtor  may  make  an  assignment ; 
preferences  are  forbid,  except  for  the  wages  of  labor, 
performed  within  six  months  previous.  Judgment  by 
default,  or  confession,  cannot  be  made  to  defeat  general 
creditors.  Acceptance  of  a  dividend  does  not  discharge 
the  debtor,  nor  does  he  obtain  such  discharge,  without 
the  unanimous  consent  of  his  creditors.  Those  who  do 
not  come  into  the  assignment  lose  their  share  of  the 
dividends.  LIMITATIONS:  Accounts,  six  years;  simple 
promissory  notes,  six  years ;  sealed  instruments  and 
judgments,  twenty  years.  Oral  promise,  or  partial 
payment,  will  revive  the  debt.  EXEMPTIONS  :  There  is 
no  homestead  exemption.  Household  furniture  and 
family  stores  of  housekeeper  are  exempt,  to  the  value 
of  three  hundred  dollars,  with  wearing  apparel,  etc. 
Debts  secured  by  promissory  notes  or  bills  of  exchange 
are  also  exempt.  LEGAL  INTEREST,  six  per  cent. 

SOUTH  CAROLINA.— There  is  in  this  State  a  law 
for  the  relief  of  persons  arrested  in  civil  actions  ;  undue 
preferences  are  forbidden.  A  discharge  releases  the 
insolvent  from  all  suing  creditors,  and  from  all  other 
creditors  who  shall  corne  in  and  accept  a  dividend  of  the 
assigned  effects.  The  debt  due  to  a  creditor  is  not 


APPENDIX.  213 

affected  if  he  does  not  participate  in  the  dividends. 
LIMITATIONS  :  Judgments  and  sealed  instruments,  twenty 
years ;  other  actions,  six  years.  EXEMPTIONS  :  Family 
homestead  of  the  head  of  family,  to  the  value  of  one 
thousand  dollars,  and  yearly  produce  thereof;  also  to 
head  of  family,  certain  goods  and  chattels,  to  the  value 
of  five  hundred  dollars.  LEGAL  INTEREST,  seven  per 
cent. 

SOUTH  DAKOTA.— An  insolvent  debtor  may  ex- 
ecute an  assignment  of  property  to  one  or  more  as- 
signees, in  trust,  toward  the  satisfaction  of  his  credit- 
ors ;  but  such  assignment  shall  not  be  valid,  if  it  contain 
any  trust  or  condition  by  which  any  creditor  is  to  re- 
ceive a  preference  over  any  other  creditor.  LIMITATIONS  : 
Sealed  instruments,  twenty  years ;  judgments,  ten 
years ;  notes  and  contracts,  express  or  implied,  six 
years.  EXEMPTIONS:  Homestead,  with  improvements 
thereon,  not  exceeding  in  value  five  thousand  dollars  ; 
domestic  goods  and  chattels  specified ;  and,  to  head  of 
family,  the  right  to  select  seven  hundred  and  fifty 
dollars'  worth  of  other  personal  property,  under  certain 
conditions.  If  a  single  person,  three  hundred  dollars' 
worth.  LEGAL  INTEREST,  seven  per  cent. 

TENNESSEE.— Has  two  general  classes  of  assign- 
ments, namely  :  (1)  General  assignments,  which  are  the 
creatures  of  statute,  are  very  technical,  and  have  been 
practically  abandoned.  Attempt  to  prefer  creditors 
renders  a  general  assignment  fraudulent.  (2)  Partial 
assignments,  which  may  include  all  of  the  debtor's  prop- 
erty if  it  does  not  profess  to  do  so.  In  this  form  of  as- 
signment, preferences  may  be  made.  Creditors  not 
included  in  partial  or  "special"  assignments  have  no 
remedy,  except  by  reaching  property  of  the  assignor 


214  APPENDIX. 

not  included  in  the  instrument,  or  by  having  the  as- 
signment set  aside,  provided,  of  course,  there  be  grounds 
for  such  action.  LIMITATIONS  :  Judgments,  ten  years. 
(There  are  no  sealed  instruments  in  Tennessee) .  Notes 
and  accounts,  six  years.  EXEMPTIONS:  Homestead,  to 
the  value  of  one  thousand  dollars,  and  a  long  list  of 
specified  articles.  LEGAL  INTEREST,  six  per  cent. 

TEXAS.— Has  an  assignment  law,  which  does  not 
permit  preferences ;  but  these  can  be  made  under  a 
deed  of  trust,  which  is  now  the  course  pursued  by  in- 
solvent debtors.  Acceptance  of  a  dividend  from  an 
estate  under  assignment  discharges  debtor  if  total  divi* 
dends  amount  to  one-third  of  creditor's  claims.  Those 
who  do  not  come  into  an  assignment  lose  their  divi- 
dends, but  preserve  their  claims.  LIMITATIONS:  Ac- 
counts, two  years ;  notes,  four  years ;  judgments,  ten 
years.  EXEMPTIONS:  Homestead  occupied  as  a  home, 
or  as  a  place  to  exercise  the  calling  or  business  of  the 
head  of  a  family,  to  the  value  of  five  thousand  dollars 
without  reference  to  the  value  of  any  improvements 
thereon  ;  also,  specified  goods  and  chattels.  LEGAL  IN- 
TEREST, six  per  cent. 

UTAH.  — No  separate,  distinct  assignment,  insolvency, 
or  bankrupt  law  exists  in  this  Territory  ;  but  the  debtor 
is  permitted  by  law  to  make  an  assignment,  with  prefer- 
ences ;  but  he  cannot  obtain  a  discharge  without  the 
unanimous  consent  of  creditors,  who  lose  their  divi- 
dends, but  preserve  their  claims,  if  they  do  not  come  in. 
LIMITATIONS:  Accounts,  two  years;  notes  and  written 
obligations,  four  years  ;  judgments  of  a  court  of  record, 
five  years.  EXEMPTIONS  :  (No  property  owned  by  non- 
residents is  exempt.)  If  the  debtor  is  the  head  of  a 
family,  there  is  exempt,  homestead,  valued  at  one  thou- 


APPENDIX.  215 

sand  dollars,  five  hundred  additional  for  wife,  and  two 
hundred  and  fifty  for  each  other  member  of  the  family  ; 
besides  goods  and  chattels  specified.  LEGAL  INTEREST, 
eight  per  cent. 

VERMONT. — Has  insolvency  laws,  both  voluntary 
and  involuntary.  Insolvent  debtor  is  not  allowed  to 
make  preferential  assignment.  When  his  assets  pay 
thirty  per  cent,  or  by  vote  of  majority  in  number  and 
amount  of  his  creditors,  debtor  is  discharged.  Second 
discharge,  only  by  payment  of  fifty  per  cent,  or,  by 
vote  of  three-fourths  in  number  and  amount,  of  his 
creditors.  Foreign  creditors,  who  do  not  submit  to  the 
jurisdiction  of  the  insolvency  court,  may  recover  judg- 
ment against  the  debtor,  notwithstanding  his  discharge 
in  insolvency.  LIMITATIONS  :  Accounts  and  simple 
promissory  notes  are  barred  in  six  years.  Notes  signed 
in  presence  of  an  attesting  witness,  fourteen  years. 
Sealed  instruments  and  judgments,  eight  years.  EX- 
EMPTIONS :  Homestead,  to  the  value  of  five  hundred  dol- 
lars, and  products,  with  specified  goods  and  chattels. 
LEGAL  INTEREST,  six  per  cent. 

VIRGINIA. — Has  no  separate  and  distinct  assign- 
ment, insolvency,  or  bankrupt  law.  But  the  debtor  can 
make  a  preferential  assignment.  The  unanimous  con- 
sent of  creditors  is  required  for  the  discharge  of  the 
debtor.  Creditors  who  do  not  come  into  the  assign- 
ment lose  their  dividends,  but  preserve  their  claims. 
LIMITATIONS  :  Five  years  on  accounts,  (except  for  articles 
charged  in  retail  stores,  which  is  two  years)  ;  notes  and 
contracts,  five  years ;  sealed  instruments,  ten  years. 
Judgments  ten  years  (in  some  cases  twenty  years). 
EXEMPTIONS  :  Householder  or  head  of  a  family  may  hold 
exempt  his  real  and  personal  property,  or  either,  in- 


216  APPENDIX. 

eluding  money  or  debts  due  him,  to  a  value  not  exceed- 
ing two  thousand  dollars,  to  be  selected  by  him,  with 
certain  specified  articles.  Intention  to  claim  such 
homestead  exemption  must  be  declared  and  recorded. 
LEGAL  INTEREST,  six  per  cent. 

WASHINGTON.— Has  an  insolvent  law.  General 
assignment  of  a  debtor  must  be  for  the  benefit  of  all  his 
creditors,  in  proportion  to  the  amount  of  their  claims, 
and  when  the  requirements  of  the  law  are  complied 
with,  the  debtor  is  discharged  from  further  liability. 
LIMITATIONS  :  Upon  contracts  not  in  writing,  three 
years.  Upon  judgments,  or  contracts  in  writing,  six 
years.  EXEMPTIONS  :  Homestead,  with  numerous 
specified  articles,  and  special  exemptions.  LEGAL  IN- 
TEREST, seven  per  cent. 

WEST  VIRGINIA.— General  assignments  can  be 
made,  without  preferences.  Unanimous  consent  of 
creditors  required  for  debtor's  discharge.  Acceptance 
of  a  dividend  from  the  assignee  does  not  discharge 
debtor.  Creditors  who  do  not  come  into  an  assignment 
do  not  impair  their  rights  of  action,  and  there  is  no 
reason  why  they  should  refuse  to  accept  their  dividends. 
LIMITATIONS:  Accounts,  five  years  (except  articles 
charged  in  a  store  account,  which  is  three  years)  ;  con- 
tracts under  seal,  ten  years;  judgments,  ten  years. 
EXEMPTIONS  :  Homestead,  to  the  value  of  one  thousand 
dollars,  to  a  husband  or  parent,  if  declaration  is  previ- 
ously made  and  recorded  ;  also  to  husband,  parent,  or 
married  woman,  personal  property  to  the  value  of  two 
hundred  dollars  ;  also  tools  of  a  mechanic  or  laborer,  to 
the  value  of  fifty  dollars.  LEGAL  INTEREST,  six  per 
cent. 


APPENDIX.  217 

WISCONSIN.— Has  both  an  assignment  and  an  in- 
solvency law.  Preferences  are  not  permitted,  except  for 
wages  earned  within  six  months.  Under  the  insolvent 
law,  all  debts  are  discharged.  LIMITATIONS  :  Accounts, 
six  years ;  notes,  six  years ;  sealed  instruments,  ten 
years,  when  the  cause  of  action  accrued  without  the ' 
State  and  twenty  years  when  it  accrued  within  the 
State ;  twenty  years  upon  a  judgment  within  the  State, 
and  ten  years  on  a  judgment  recovered  out  of  the  State. 
EXEMPTIONS:  Homestead  in  the  country,  used  for  agri- 
cultural purposes,  with  dwelling-house  thereon,  and 
appurtenances,  or,  at  the  option  of  the  owner,  land 
(with  dwelling,  etc.)  not  to  exceed  one-fourth  of  an 
acre,  in  a  city  or  village  ;  with  various  other  specified 
exemptions.  LEGAL  INTEREST,  six  per  cent. 

WYOMING.— Has  an  assignment  law,  which  is  void, 
if  made  with  a  view  to  preferring  a  creditor.  Accep- 
tance of  a  dividend  from  an  estate  under  assignment 
discharges  the  debtor.  Creditors  who  do  not  come  into 
an  assignment  lose  their  dividends,  but  preserve  their 
rights  of  subsequent  action.  LIMITATIONS:  Action  on 
any  agreement  in  writing,  five  years  ;  on  actions  on  ac- 
counts, and  contracts  not  in  writing,  eight  years ;  on 
all  foreign  claims,  judgments,  or  contracts  contracted 
or  incurred  before  the  debtor  becomes  a  resident,  action 
shall  be  commenced  within  two  years  after  established 
residence.  EXEMPTIONS  :  Homestead  occupied  by  owner 
or  his  family,  not  exceeding  in  value  fifteen  hundred 
dollars ;  household  property,  owned  by  the  head  of  a 
family,  to  the  value  of  five  hundred  dollars;  other 
specified  exemptions  for  mechanics,  miners,  etc. 
LEGAL  INTEREST,  eight  per  cent. 


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persons  desirous  of  educating  themselves  to  become  successful  sales- 
men or  saleswomen.  The  author's  suggestions  are  copious  and  to 
the  point." — N.  Y.  Sun.  

Sent,  post-paid,  on  receipt  of  the  price,  by 

F=\    TENNYSON 

114  Fifth  Avenue,  New  York. 


S  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN     INITIAL    FINE    OF    25     CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


& 


5  1954  LU 


ReTC'D  LD 

JAN  5    1957 

19Nov'59CR| 


19 


' 


DEC1213SC 


LD  21-50m-l,'38 


YB   18683 


582977 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


